SAIF ULLAH KHAN, ACCOUNT ANT MEMBER .----This Appeal has been filed by the appellant/taxpayer assailing the Order No.27 dated 14.09.2018 passed by the learned CIR (Appeals-IV), Karachi. Through the impugned order the learned CIR(A) has confirmed the order under section 122(5A) of the Income Tax Ordinance, 2001, passed by the Additional Commissioner Inland Revenue, Range-A, Zone-01, LTU-II, Karachi. The appellant/taxpayer has agitated against the order of learned CIR(A) through grounds of appeal, which are reproduced hereunder:
1. That, the impugned order dated 14-9-2018 passed by the learned commissio ner Inland Revenue, Appeal-IV , Karachi as well as the order passed by Additional Commissioner Inland Revenue, Audit Range-A, Zone-I, Large Taxpayer Unit-II, Karachi is bad in law and on facts,
2. That, the impugned order dated 14.09.2018 passed by the learned Commissio ner Inland Revenue, Appeal-IV , Karachi as well as the order passed by Additional Commissioner Inland Revenue, Audit Range-A, Zone-I, Large Taxpayer Unit-II, Karachi void ab-initio illegal without lawful authority .
3. That the learned Commissioner Inland Revenue, Appeals-IV , Karachi has failed to appreciate this fact that appellant has approval being non-profit organization under section 2(36) .of the Income Tax Ordinance, 2001 in view of the facts of the case.
4. That the learned Commissioner Inland Revenue, Appeals-IV , Karachi was not justified to confirm levy of Income Tax on gross receipts instead of taxable income in view of the facts of the case.
5. That the learned Commissioner . Inland Revenue, Appeals-IV , Karachi was not justified to confirm levy of income tax on gross revenue at Rs.736,760,722 instead of taxable income in view of the facts of the case.
6. That the learned Commissioner Inland Revenue, Appeals-IV , Karachi has failed in considering the revised return filed under section 1 14(6) of the Income T ax Ordinance, 2001,
7. That the learned Commissioner Inland Revenue, Appeals-1V , Karachi was not justified in confirming demand created by the learned Additional Commissioner Inland Revenue, Audit Range-A, Zone-I, Large Taxpayer Unit-II, Karachi amounting to Rs. 257,088,753/- in view of the facts of the case.
8. That the appellant craves permission to add, amend or alter the ground of appeal on or before the time of appeal.
2. Brief facts of the case are that the taxpayer in the capacity of an AOP is running a University under the name and style as "Ziauddin University ". The appellant is holding an approval under Section 2(36) of the Income Tax Ordinance, 2001 as a Non-Profit Organization. Proceedings under sections 124/122(5A) were initiated against the taxpayer upon the directions of learned Commissioner Inland Revenue (Appeals- IV) given in first appellate order No.4 dated 08.05.2017, passed in appea l filed by the taxpayer/appellant against first order passed under section 122(5A) of the Ordinance. The taxpayer was issued show-cause notice under section 122(9) of the Income Tax Ordinance, 2001 dated 26.05.2018 to afford an opportunity of being heard which was followed by notice dated 19.06.2018. The taxpayer complied vide letter dated 23.06.2018, however , the reply so filed by the appellant could not attain the satisfaction of the Additional Commissioner who concluded the amendment proceedings by passing amended order under sections 124/122(5A) of the Income Tax Ordinance, 2001.
3. The appellant/taxpayer again went into appeal before the learned CIR(A), Karachi who vide order No.27 dated 14.09.2018 confirmed the action of the ACIR. The appellant felt aggrieved with the treatment meted out by the learned CIR(A), therefore filed present appeal before this forum.
4. On the date of hearing the learned counsel for the appellant Mr. Abdul Rahim Lakhany and Vishwa Mittar , Advocates appeared on behalf of the appellant/taxpayer while the department was represented by Mr. Naveed Dost Chandio, D.R.
5. The learned counsel for the appellant at outset submitted that the appellant being Non-Profit Organization was, granted approval under section 2(36)(c) of the income Tax Ordinance, 2001 read with Rule 212 of the Income Tax Rules, 2002 by the learned Commissioner Inland Revenue, Legal Division, RTO, Karachi, which was valid un-till revoked. Since the approval so granted was still operative, therefore, the appellant was entitled for exemption from income as per history of the case. The AR further submitted that refusal of exemption on the ground that after omission of clause 92 and subsequently of (58A) Part-IV of the Second Schedule to the Income Tax Ordinance, 2001 was not justified because after omission of said clauses section 100C was inserted in the Ordinance which is para materia of clauses (92) and (58A). He further submitted that exemption granted under Rule 212 is valid and holding field unless it is withdrawn under Rule 214 in accordance with Rule 217 of the Income Tax Rules, 2002. He further submitted that in identical case it was decided by the Honorable High Court of Sindh in judgment reported as 2018 PTD 1787 , wherein it was held under the Doctrine of Implied Repeal that once the approv al is granted unconditionally till revoked the taxpayer is fully entitled to be considered as Non-Profit Organization until and unless it is revoked.
6. The AR further submitted that the appellant is a University established solely for the purpose of education and the appellant is duly entitled for exemption under clauses (92) and (58A) and now for 100% tax credit after insertion of section 100C of the Income Tax Ordinance, 2001. In support of his contention the AR relied on case law titled as Oxford University Press v. The Comm issioner Inland Revenue, Zone-II, Large Taxpayer Unit, Karachi passed by the Honorable Supreme Court of Pakistan. The AR submitted that principle decided by the Honorable Supreme Court of Pakistan in said judgment has become law of the land and applicable on all subordinate courts and Tribunals. The AR went on arguing that even otherwise applicability of section 100C of the Income Tax Ordinance, 2001 requires detailed investigations to determine taxable income and tax thereon for tax credit which is out of preview of section 122(5A) of the Income Tax Ordinance, 2001. The AR in this regard relied on the case law reported as 2017 PTD 1911 decided by the larger bench of Honorable Appellate Tribunal Inland Revenue, Karachi. The AR further argued that in the instant case gross amount of receipts was taxed instead of taxable income, which is against provisions of law. The AR also stated that since the return was revised under section 114(6) of the Income Tax Ordinance, 2001 after due approval by the Commissioner Inland Revenue, Zone-I, Large Taxpayer Unit-II, Karachi hence it was deemed assessment order under , section 122(3) of the Ordinance, 2001 before fresh proceedings under sections 122(5A)/124 of the Income Tax Ordinance, 2001 for amending the deemed order under section 120 of the Income Tax Ordinance, 2001 which was not holding the field. Said facts have been ignored by the Additional Commissioner Inland Revenue, while passing the amended order under sections 124/122(5A) of the Ordinance, 2001. The AR concluded the argument with prayer to allow appeal by cancelling the impugned orders passed by the authorities below .
7. On other hand the learned D.R suppor ted the orders passed by both the author ities bellow . The DR argued that after omission of exemption clauses 92 and 58A of the Second Schedule the ADCIR lawfully levied tax on receipts of the appellant. The DR further argued that the appellant did not prove as to how it was eligible for benefits of section 100C of the Ordinance.
8. We have considered the arguments of both the parties and perused the record. Initially proceedings under Section 122(5A) were initiated on 20.01.2 017, wherein claim of exemption of income by the appellant in return filed on 21.01.2016 was challenged in view of omission of Clause 92 of Part-I of the Second Schedule to the Income Tax Ordinance, 2001 through Finance Act, 2013. Proceedings were ultimately finalized under Section 122(5A) of the Income Tax Ordinance, 2001 by rejecting the claim of exemption. On the ground that Section 100C did not allow exemption but it allowed tax credit on fulfilling certain conditions on appeal filed against said order the learned CIR(A) vide order No.4 dated 08.05.2017 remanded back the case to the ADCIR with following observation/directions:- "In view of the above, it is apparent that proper opportunity has not been provided to the taxpayer and order has been passed in haste on presumption and without consideration of the histor y of the case and the gazette notification of the Provincial Government and the approval of Non-Profit Organization granted by the tax department. It is also noted that without withdrawing the approval of the NPO, how the income of the NPO can be taxed. In view of the Gazette notification this NPO may fall under clause (126) of Part 1 of the Second Schedule it is up to ACIR to determine the same otherwise the NPO has to fulfill the conditions for admissibility of 100% tax credit as stipulated under section 100C of the Ordinance. The Additional Commissioner -IR also failed to give the reference number of the order of the delegation under section 210(1) in the rebuttal's to the AR contention.
Therefore, I deem it appropriate to remand the matter back to the Additional Commissioner -IR with the direction to look into the above point raised in my findings and pass a specking order after providing proper opportunity of being heard."
9. On the basis of above directions of the learned CIR(A), the ADCIR initiated proceedings under Sections 124/122(5A) vide notice dated 26.05.2018 and ultimately passed order under sections 124/122(5A) on 30.06.2018 wherein claim of exemption/tax credit was disallowed on the grounds that clauses 92 and 58A have been omitted and the appellant has failed to fulfill condi tion laid down in newly inserted section 100C for 100% tax credit. Against said order appeal has been filed before the learned CIR(A) who vide order No.27 dated 14.09.2018 confirmed said order .
10. After passing of first order of appeal by the learned CIR(A) vide Order No.4 dated 08.05.2017 the appellant has applied for revision of return of income on 05.07.2017 which has been granted on .06.09.2017. The purpose of revision of return was to avail the benefits of Section 100C which was inserted vide Finance Act, 2014. The revised return was however treated by the ADCIR as invalid on the ground that it did not fulfill the conditions laid down in Section 114(6) of the Ordinance. The ADCIR also rejected claim of the appellant in terms of Section 100C of the ordinance on the ground that the appellant failed to fulfill the conditions contained in Section 100C of the Ordinance read with Rules 211 and 220 of the Income Tax Rules, 2002 and that the renewal of approved under Section 2(36)
(c) of the Ordinance read with Rule 214 of the said Rules issued on 03.09.2008 was no longer valid after omission of clause 92 through Finance Act, 2013. The ADCIR proceeded to tax declared gross receipts of the appellant as taxable income. The said order passed by the ADCIR was challenged before the learned CIR(A) who vide order dated 14.09.2018 confirmed said treatment by the ADCIR.
11. From the above narrated chronology of events it is evident that the core issue is whether the appellant claiming the status of NPO (Non-Profit Organization) and also possessing a renewal of approval under Section 2(36)(c) of the Ordinance is eligible for the benefits of section 100C of the Ordinance or not. Initially the appellant filed return of income claiming the benefits of tax exemption provided under Clause 92 of the Second Schedule to the Ordinance which is as follows:-
92. Any income of any university or other educational institution established solely for educational purposes and not for purposes of profit"
12. The above Clause provided blanket exemption to any income of a university but said clause was withdrawn vide Finance Act, 2013. The ADCIR accordingly initiated proceedings under Section 122(5A) on the ground that exemption claimed under said Clause 92 is no more available after omission thereof through Finance Act, 2013. It is pertinent to mention that after omission of clause 92 through Finance Act, 2013 another Clause 58A was inserted in Part-I Second Schedule to the Ordinance which is as follows:- "(58A) Income of a university or other educational institution being run by a non-profit organization existing solely for educational purposes and not for purposes of profit."
13. It is important to note that in clause (58A) blanket exemption under omitted clause 92 has been replaced by conditional exemption to income of a university that it should be run by an NPO. Through Finance Act, 2014 Clause 58A of Second Schedule to the Ordinance was also omitted and a new Scheme of tax credit was introduced for the NPOs and universities being run by a NPO etc. by insertion of Section 100C. It is pertinent to reproduce said Section as under: "100C. Tax credit for certain persons. - (1) Non-profit organizations, trusts or welfare institutions, as mentioned in subsection (2) shall be allowed a tax credit equal to one hundred per cent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions, namely-
(a) return has been filed;
(b) tax required to be deducted or collected has been deducted or collected and paid; and
(c) withholding tax statements for the immediately preceding tax year have been filed.
(2) Persons eligible for tax credit under this section include-
(d) income of a university or other educational institution being run by a non-profi t organization existing solely for educational purposes and not for purposes of profit".
14. From the above provision of the Ordinance, it is evident that the NPOs and universities etc. are no longer exempt from income tax. However , now such entities are eligible for 100 percent tax credit on fulfillment of certain conditions. More specifically income of a university run by a NPO is eligible for tax credit under section 100C(2)(d) subject to conditions laid down in Section 100C(1) of the Ordinance.
15. After going through above facts and changes in legal provisions, we are of the considered opinion that both the appellant and the learned officers below have misinterpreted provisions of law and factual to correctly appreciate facts of the case. The learned AR's contention regarding exemption on the basis not an approval under Section 2(36) or tax credit on the basis of Section 100C are not convincing. An approva l under Section 2(36) provides status of a NPO to an entity by virtue of which such entity can obtain donations more easily because the donors can get tax credit under Section 61 of the Ordinance. Hence mere availability of an approval under Section 2(36) does not provide exemption of income to a NPO. Exemption to income of a NPO or a university was available under clauses 92 and 58A of the Secon d Schedule. Similarly , the new scheme of tax credit introduced through Section 100C does not provide for exemption to income of NPO or a university but it gives 100% tax credit to a NPO or university on fulfillment of conditions provided under subsection (1) of the said Section. Further scheme of tax credit first requires determination of taxable income and tax liability of such NPO or university . Moreover Section 100C also provide tax credit against minimum tax and final taxes which means that such entities are liable to such taxes if such entities do not get exemption certificate under section 159(1)(c) of the Ordinance. If such exemption certificate is not obtained then NPOs or university will be liable to minimum tax as well as withholding etc. but later on NPOs or universities are eligible for tax credit against such minim um and final taxes. During the course of hearing the AR could not provide any such exemption certificate under Section 159(1)(c) of the Ordinance. Further the AR could not make convincing arguments or provide supporting evidences that the appellant fulfilled conditions laid down in section 100C(1). The appellant in fact initially claimed exemption on the basis of omitted Clauses 92 and 58A of Part-I of the Second Schedule but later on realizing the mistake revised return of income after first decision of the learned CIR(A) which in our considered view is not a valid return on the basis of theory of merger . The AR relied on case laws and decisions of the Hon'ble Courts which pertain to the scheme of law when exemption of income was available to NPOs or universities under the repealed Ordinance, 1979 or present Ordinance, 2001. Hence such case laws are distinguishable.
16. On the other hand, the learned ADCIR has invoked Section 122(5A) to tax income of a NPO being a university which is eligible for tax credit on fulfillmen t of certain conditions. Such an effort is beyond the scope of provisions of Section 122(5A) as determination of G taxable income, tax liability and tax credit requires detailed enquiries and investigation. Reliance is placed in 2017 PTD 1911. The learned officer has based his order solely on the omission of Clause 92 (or 58A as well as Rules 211 to 220 of the Income Tax Rules, 2002) and ignored the dynamics of the new scheme of law provided in Section 100C of the Ordinance. The learned officer has further erred in levying tax on gross declared receipts of the appellant which is illogical because if the appella nt was not eligible for exemption under clauses 92 and 58A or for tax credit under section 100C then it was still eligible for treatment as a H university being run for profit where expenses incurred are allowed against gross receipts. The learned Officer has neither made any efforts nor discussed in his order as to how the appellant did not fulfill conditions provided in Section 100C. Further the Officer has referred only Rules 211 to 220 of the Income Tax Rules, 2002 whereas in a case where Section 100C is involved relevant Rule is 220A of the said Rules. The learned CIR(A) in his first order has remanded back the case to the Officer while in second order the learned CIR(A) has confirmed the order passed by the learned ADCIR without discussing the relevant facts and provisions of law or rebutting the points raised by the appellant/taxpayer in first appeal proceedings.
17. In the light of above discussion, it is evident that neither facts of the case are properly threshed out nor relevant provisions of the Ordinance and Rules are correctly interpreted and applied. Therefore the orders passed by the Officers below cannot be allowed to sustain. However , in view of narrated facts and provisions of law, we deem it appropriate to remand back the case to the Officer holding lawful jurisdiction and authorized under section 177 to make proper investigations in order to ascertain eligibility of the appellant for the I benefits of Section 100C and if the appellant is so eligible then the officer shall determine taxable income and tax liability of the appellant. In case the appellant is not eligible for tax credit under section 100C then the officer is directed to determine taxable income and tax liability of the appellant under the provisions of the Ordinance as a university not eligible for tax credit or not qualified as a NPO. The officer is also directed to come up with a judicious order in the light of above discussion. The appellant/taxpayer is also directed to assist the officer in this regard by providing required details, documents and explanations.
18. Before parting, we deem it appropriate to mention that for getting the status of an NPO an entity is required to obtain approval from Commissioner under Section 2(36)(c) of the Ordinance but for availing the benefit of 100C an NPO is required to obtain approval from Chief Commissioner under section 100C( 2)(c) read with Rule 220A of the Rules.
19. The appeal is disposed of f as indicated above.