CH. SHAHID IQBAL DHILLON (Judicial Member):The titled appeal pertaining to tax year 2016 has been preferred on behalf of taxpayer engaged in the general insurance business, impugns the appellate order dated 08-05-2017 passed by the learned CIR(A) in connection with proceedings earlier concluded vide amendment order dated 10-04-2017 issued under section 122(5A) of the Income Tax Ordinance, 2001 (hereinafter 'Ordinance'). The solitary issue involved in the subject appeal is legality or otherwise of 'super tax' imposed under section 4B of the Ordinance.
2. Facts in brief are that the taxpayer, in the return of income for the subject tax year, did not admit the liability on account of 'super tax' as specified in section 4B of the Ordinance, on the grounds that the 'income' for the year, vis--vis the scope stipulated in these provisions of law, remained below the threshold of Rs. 500 million in case the effect of brought forward losses from preceding years is taken into account. In this background, the Additional Commissioner Inland Revenue, Audit Division-1, Large Taxpayers Unit. Lahore initiated the proceedings under section 122(5A) of the Ordinance vide notice dated 23-01-2017 and confronted to the taxpayer that 'super tax' remained payable in this case as income for the year, prior to taking effect of brought forward losses, remained in excess of Rs. 500 million. The reply out forth by the
(2) ITA No. 1154/LB/2017 taxpayer in defense did not satisfy the Additional Commissioner as result of which the action as proposed in the show cause notice was enforced. The appeal filed by the taxpayer before the learned first appellate authority could not succeed; hence the present appeal.
3. The leaned counsel for the appellant argued before us, as was earlier done before the learned first appellate authority, that the action of the Additional Commissioner suffers from serious and incurable infirmities and as such imposition of 'super tax' remain unlawful and unsustainable. The gist of the arguments of the learned counsel for the taxpayer/appellant are:
(i) The initiation and conclusion of proceedings, leading to imposition of 'super tax', under section 122(5A) of the Ordinance is without jurisdiction as the right course of action, notwithstanding all other considerations, was to proceed under section 4B(4) of the Ordinance being an expressed provision specified in the statute for imposition of 'super tax' in legally permissible cases. In this regard the learned counsel heavily relied upon the decision of this Tribunal dated 03-11-2016 in the ITA No. 2122/LB/2016 in the case of M/s Tahir Builders (Pvt) Limited wherein this legal position has already been settled by the Tribunal; and
(ii) Without prejudice to above, even if the assumption of jurisdiction under section 122(5A) of the Ordinance is held to be lawful in this case, still, for an insurance company, covered by section 4B(2)
(iv) of the Ordinance, the bar against adjustment of brought forward losses against income stipulated in section 4B(2)(ii) remains inapplicable. In this regard, it has been submitted' that in the context of phraseology "income computed under Fourth, Fifth, Seventh and Eighth Schedules", employed in section 4B(2)(iv),
(3) ITA No. 1154/LB/2017 "income" has to be constructed in the same manner and to the same extent as is done for the purposes of section 99 of the Ordinance read with Fourth Schedule to the Ordinance. It was added that courts have already settled, on numerous occasions, that for an insurance company the concept of one basket income is applicable and each component of income is treated as insurance income without segregation into different sources or heads, as the case may be.
Therefore, according to learned counsel, the case of the appellant taxpayer has to be considered in totality under section 4B(2)(iv) and as such no other sub-clause of section 4B(2) applies. It was finally submitted that since the bar against adjustment of losses is prescribed exclusively for income covered by section 4B(2)(ii), no lawful basis exist to stretch the same to cases covered by 4B(2)(iv) of the Ordinance.
4. The learned DR, on his turn, defended the orders. of the authorities below and reiterated the contentions stated in the respective orders. In connection with the decision of this Tribunal, the learned DR had no argument except stating that the same is not a final verdict on the legal proposition and the possibility exists that the same had already been assailed before the honorable I chore High Court. Commenting upon the argument of the learned counsel of the appellant with regard to applicability exclusively of section 4B(2)(iv) of the Ordinance, the learned DR submitted that section 4B of the Ordinance is a special provision, therefore, any interpretation advanced in the context of section 99 of the Ordinance is not relevant for considering applicability of super tax in relevant cases.
5. We have heard both the parties and have given consideration to the respective arguments and have minutely examined the case record available before us. The case law submitted before us has also been given due consideration. In the circumstances that the
(4) ITA No. 1154/LB/2017 matter before us pertains to interpretation and application of section 4B of the Ordinance, therefore, it would be in the fitness of things if these provision are reproduced hereunder to facilitate a quick reference:- "4B. Super tax for rehabilitation-Of temporarily displaced persons -- (1) A super tax 'shall be imposed for rehabilitation of tempororily displaced persons, for tax years 2015 and 2016, at specified in Division IIA of Part I of the First Schedule, HI) income of every person specified in the said Division.
(2) For the purposes of this section, --income shall be the sum of the following:--
(i) profit on debt, dividend, capital gains, brokerage .and commission;
(ii) taxable income(other than brought forward depreciation and brought forward business losses) under section (9) of this Ordinance, if not included in clause (1);
(iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and
(iv) income computed under Fourth, Fifth, Seventh and Eighth , Schedules.
(3) The super tax payable under sub-section (1) shall be paid, (collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.
(4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order inwriting, determine the super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance.
(5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super fax payable under subsection (1) and the provisions of Part IV, X, XI and XII of Chapter X and Part 1 of Chapter XI of the Ordinance shall, so far as may be to the collection of super lax as these apply to Me collection of tax under the Ordinance. (6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section."
6. The proposition as to whether invocation of section 122(5A) of the Ordinance for imposition of 'super tax', in cases covered by relevant provisions of law, has been elaborately and eloquently discussed by this Tribunal in the order dated 03-11-2016 in ITA No.2122/LB/2016. In the judgment, by reference to expressed provisions contained in section 4B(4) has categorically observed in
(5) ITA No. 1154/LB/2017 the following words that proceeding under section 122(5A) of the Ordinance are without lawful jurisdiction: 7 Arguments have been heard, available record perused.The provisions of law referred to us have been minutely studied. After proper analysis of arguments, it has helped us to reach a conclusion that the Department, by ignoring the specific provision of law as laid down by the legislature In Section 413 has prefferred to move arbitrary not legally proscribed manner, thereby have committed jurisdictional incurable error by not proceeding strictly in accordance with the Specific provision as set out in section 413 which has made the order u/s 122(5A) as not maintainable being illegal void ab initio, as the law hos prescribed a specific way for particularly charging the super tax u/s 4B, then it ought has to be followed for a compulsory legal coverage but in the instant case it has illegally been done under Section 122(5A), which has made it as not has been done at all by recording findings on the issue of jurisdiction, the appeal stood accepted on this score. ....."
7. In the circumstances that each and every aspect of the legal issue before us, vis-a-vis lawful jurisdiction, has already been examined by the Tribunal in the judgment cited supra and since there is no contrary view on the proposition of any other appellate authority, we have no hesitation to conclude that the authorities below grossly erred in holding the assumption of jurisdiction under section 122(5A) of the Ordinance. to be lawful. Respectfully following our earlier view, we hold that assumption of jurisdiction under section 122(5A) of the Ordinance was unlawful.
8. We also find considerable force in the arguments of the learned counsel for the appellant that for the purposes of computing income for imposition of 'super tax' the restriction on adjustment of brought forward losses, as stipulated in section 4B(2)(ii) of the Ordinance could not be extended to cases of Insurance companies covered by clause 4B(2)(iv). The authorities below have rightly observed that by the use of word "sum" in sub-section 2 the sub-clauses operate conjunctively, however, the expressed language employed in sub-clause (iv) leave no doubt that for cases covered therein nothing remains couched in other three sub-clauses. By use of expression "income computed under
(6) ITA No. 1154/LB/2017 Fourth .... Schedule", the 'legislature has clearly expressed its intention that for the purposes of computation of liability of 'super tax' all principles and bases applicable under Fourth Schedule apply mutatis mutandis for computation of income under section 4B of the Ordinance. Since the- Apex Court in 1993 PTD 766, the famous Central Insurance case, and the honorable Karachi High Court in 2011 PTD 2042, EFU General Insurance case, have categorically observed that the concept of one basket income applies for insurance companies and different components of income, be that capital gains or dividends etc., are regarded as insurance income, therefore, there is no doubt that for insurance companies only clause 4B(2)(iv) remain applicable. If the intention was otherwise, the legislature would have certainly expressed so by employing suitable language. The upshot of the discussion is that the appellant had rightfully accounted for brought forward lasses while computing income under section 4B of the Ordinance and as such the bar specified in section 4B(2)(ii) was not extendable to section 4B(2)(iv) of the Ordinance. The orders of the authorities below are therefore disapproved.
9. The subject appeal stand decided in the manner and to the extent as discussed above.
Sd/- (CH. SHAHID IQBAL DHILLON)
Judicial Member Sd/- (ABDUL NASIR BUTT)
Accountant Member