JUDGMENT: MR. JUSTICE ASIM HAFEEZ.--(1). This reference application along applications bearing ITR No. 314/2015 and ITR No. 315/2015 are directed against consolidated order dated 29.01.2015, passed by the Appellate Tribunal Inland Revenue, Lahore ("Appellate Tribunal"), in terms whereof appeals of the taxpayer were allowed in respect of the issues, subject matter of referred applications. All these reference applications, involving common questions of law, are hereby decided collectively.
Matters relate to Tax Years 2010, 2011 and 2012.
2. Following questions of law are pressed for determination.
"(i) Whether on facts and in circumstances of the case the learned ATIR was justified to disapprove the proration of expenses between presumptive and non presumptive income in respect of financial and administrative expenses whereas such proration was authorized by Section 67 of the Income Tax Ordinance, 2001 read with Rule 13 of Income tax Rules, 2002?
(ii) Whether on facts and in circumstances of the case the learned Tribunal was justified to direct to charge minimum tax on turnover or tax collected under "Financial Tax Regime" whereas the explanation appearing in sub-section (1) of Section 113 of the Income Tax Ordinance, 2001 clearly stipulate that the tax payable or paid as minimum tax does not include tax already paid or payable in respect of income liable to be assessed as final discharge of Tax liability u/s 169 of the Ordinance or under any other provisions of the Ordinance?
3. Learned counsel for the department could not controvert findings recorded by Appellate Tribunal that apportionment of expenses under Section 67 of the Income Tax Ordinance, 2001 (Ordinance, 2001) read with Rule 13 of the Income Tax Rules, 2002 is not required when taxpayer has maintained separate accounts regarding income under normal tax regime (NTR) and final tax regime (FTR).
4. In view of the aforesaid, question of law at Sr. No. (i) is answered in affirmative as proration under Section 67 read with Rule 13 ibid is not required in this case.
5. In the context of question of law at Sr. No.(ii) learned counsel for the department submits that Appellate Tribunal erred in law while observing that taxpayer could only be burdened with higher of the two levies, i.e., either minimum tax under section 113 of Ordinance, 2001 or the income coming under FTR. Submits that in terms of the Explanation added to sub-section (1) of section 113 of the Ordinance 2001, expression "tax payable or paid" does not include tax already paid or payable in respect of deemed income which was treated as final discharge of the tax liability under section 169 of the Ordinance.
6. Conversely, submissions are controverted, and judgment of the Appellate Tribunal was supported on the premise that minimum tax was wrongly computed by the Taxation officer and first appellate forum, which was rectified by the Appellate Tribunal. Adds that explanation added to sub-section (1) of section 113 of the Ordinance had no application to the subject matter Tax years.
7. At the outset, it is expedient to reproduce the findings recorded by the Appellate Tribunal regarding turnover, liable to minimum tax in terms of section 113 of the Ordinance, 2001, which reads as.
"We also agree with the AR of the company that in the years under appeal, the appellant could be lawfully burdened with higher of the two levies. i.e., either minimum tax under section 113 of the Income Tax Ordinance 2001 or the tax on FTR income". ...... Respectfully following the above quoted reported judgment we direct the additional commissioner to levy higher of the two taxes -either tax on turnover or tax on FTR Income. Besides, minimum tax should not be charged on turnover relating to the period of 01.01.2009 to 30.06.2009 as during this period provision of section 113 of the Income Tax Ordinance 2001 was not part of the Statute Book. From 01.07.2009 to 30.06.2010 rate of the levy was half percent whereas for the subsequent period it was increased to one percent. We would also like to clarify that scrap sales, penalty income, sale of fixed assets, etc. would not form part of the turnover for the purposes of charging minimum tax in the light of the judgments relied upon by the AR.
[Emphasis supplied]
8. It was the claim of the taxpayer that calendar year was the company's income year and no tax under section 113 of the Ordinance, 2001 was chargeable for the period from 01.01.2009 to 30.06.2009 - when section 113 was re-inserted through Finance Act 2009. Going by this analogy, Explanation to section 113 of the Ordinance, 2001, added through the Finance Act, 2012, became applicable to the company from the period of 01.01.2012 to 31.12.2012 - when calendar year was company's tax year.
This material fact escaped attention of the Appellate Tribunal. It is expedient to reproduce the Explanation hereunder; Explanation--For the purposes of this sub-section, the expression "tax payable or paid" does not include--
(a) tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance; and
9. Upon perusal, evidently the Explanation merely reaffirmed the intent and command expressed while defining the 'turnover' under sub-section (3) of section 113 of the Ordinance, 2001 - as implemented through Finance Act 2009, which for facility of reference, is reproduced hereunder as, "(3) turnover" means,--
(a) the gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;
(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable;
(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and
(d) the company's share of the amounts stated above of any association of persons of which the company is a member.
[Emphasis supplied]
10. Explicitly, turnover excludes the tax paid or payable as final discharge of the tax liability.
Evidently, the Explanation added through Finance Act 2012 replicates exclusion of deemed income assessed as final discharge of tax liability envisaged under sub-section (3) of section 113 of the Ordinance, 2001. It is apparent that Appellate Tribunal overlooked the defamation of `turnover' and misconstrued sub-section (3) of section 113, ibid. We lay our hands on a judgment by the august Supreme Court of Pakistan, wherein subject matter of adjudication was section 113 of the Ordinance, as it existed prior to the omission by the Finance Act 2008, though salient features of re- inserted section 113 of the Ordinance through Finance Act, 2009 were considered, in the case of 'Commissioner of Income Tax Legal Division, Lahore, and others v. Khurshid Ahmad and others'
(PLD 2016 Supreme Court 545). Relevant portion of the discussion, having proximity to the lis at hand, is reproduced hereunder as at page 560, 561 & 562-- "At the cost of repetition, Section 80D of the Ordinance of 1979 includes within its ambit receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts, whether or not such receipts fall under the Presumptive Tax Regime or Normal Tax Regime. In similar vein, Section 113 of the Ordinance of 2001 includes within its ambit receipts, exclusive of sales tax and Federal excise duty or any trade discounts shown on invoices or bills, derived from the sale of goods, rendering of services or giving of benefits including commissions, or from the execution of contracts, whether or not such receipts fall under the Presumptive Tax Regime or Normal Tax Regime. There is nothing in the wording of Sections 80D and 113 of the respective Ordinances to suggest that for the purposes of calculating the turnover for the said sections receipts of income subject to the Presumptive Tax Regime are excluded. Furthermore, Section 153(1)(c) of the Ordinance of 2001 provides that receipts from the execution of contracts would be subject to presumptive tax which would be final, and at the same time Section I 13(3)(c) of the said Ordinance clearly includes gross receipts from the execution of contracts within 'turnover' for the purposes of determination of minimum tax under Section 113. Thus it certainly cannot be said that receipts of income subject to presumptive tax would automatically fall outside the scope of Section 113 (for the tax years up to 2009, prior to re-insertion of Section 113 by the Finance Act, 2009).
9. In furtherance of the above analysis, there was nothing to prevent the Legislature from expressly providing that such receipts (under the Presumptive Tax Regime) would be excluded while calculating the aggregate turnover under the said sections. This interpretation is augmented by the fact that the new Section 113 of the Ordinance of 2001, as re-inserted by the Finance Act, 2009 (new Section 113), specifically excluded from its domain the amounts subjected to the Presumptive Tax Regime, which (section) reads as below:-- "113. Minimum tax on the income of certain persons.--(1) This section shall apply to a resident company where, for any reason whatsoever allowed under this Ordinance, including any other law or for the time being in force--
(a) loss for the year;
(b) the setting off of a loss of an earlier year;
(c) exemption from tax;
(d) the application of credits or rebates; or
(e) the claiming of allowances or deductions (including depreciation and amortization deductions) no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than one-half per cent of the amount representing the person's turnover from all sources for that year: Provided that
(2) Where this section applies: Provided that ........................
(3) "turnover" means, - (a) the gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable;
(b) the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable
(c) the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable: and
(d) the company's share of the amounts stated above of any association of persons of which the company is a member." (Emphasis supplied)
The underlined portions in the new Section 113(3) show the additions made to the said subsection specifically excluding from its purview the amounts treated as deemed income and assessed as final discharge of tax liability for which tax is paid/payable, i.e. those falling under the Presumptive Tax Regime. These additional phrases inserted into the new Section 113 (underlined above) are missing from the earlier Sections 80D and 113 of the respective Ordinances which patently suggests that the minimum tax payable under Section 80D is leviable on the aggregate of declared turnover from all sources including receipts covered by Sections 80C and 80CC of the Ordinance of 1979, and that the minimum tax a 'able under Section 113 is leviable on the aggregate turnover from all sources including receipts and tax under the Presumptive Tax Regime of the Ordinance of 2001. The above analysis also draws support from the insertion of the explanation to the new Section 113(1) of the Ordinance of 2001 by the Finance Act, 2012 which reads as follows:- "Explanation.--For the purpose of this subsection, the expression "tax payable or paid" does not include tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance."
The absence of this explanation from the old Section 113 (prior to its omission by the Finance Act, 2008) clearly suggests that the Legislature did not intend that tax already paid/payable in respect of deemed income which was assessed as final discharge of the tax liability under section 169 or under any other provision of the Ordinance of 2001 would be excluded from the purview of 'tax payable or paid', because the Legislature did not expressly provide so and as mentioned above, fiscal statutes are generally to be interpreted strictly, without imputing anything that is not manifest from the express wording of such statute.
Thus in light of the ratio decidendi of Hirjina & Co. (supra) it is clear that the exclusion of amounts treated as deemed income and assessed as or covered by final discharge of tax liability for which tax is separately paid/payable from the term 'turnover' cannot be implied in the provisions of Sections 80D and 113 of the respective Ordinances, as the same has not been so expressed. The appellants/petitioners' argument that failure to exclude amounts which are covered by final discharge of tax liability from the 'turnover' results in numerous taxpayers essentially crossing the threshold provided in the said sections thereby rendering them not liable to payment of minimum tax as envisaged by the said sections, and thus depriving the appellants/petitioners of well- deserved revenue, is not a justification to read into the provisions of Sections 80D and 113 something which is not there "so as to support assumed deficiency"; as there can be no equitable construction of taxing statute."
11. Tax years involved are 2010, 2011 and 2012. Income coming under FTR - in terms of re-enacted section 113 of the Ordinance, 2001 - is not covered under the turnover, which excludes any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable. Hence, income qualified under FTR does not form part of the turnover, therefore not covered under minimum tax regime, provided under section 113 of the Ordinance, 2001. Minimum tax regime, established under section 113 of the Ordinance, prescribe mechanism for computation of minimum tax, based on the value of turnover, subject to the conditions provided.
12. In view of the aforesaid, we hold that determination by the Appellate Tribunal that higher of the two taxes - either minimum tax under section 113 of the Ordinance or final tax under FTR - be levied is erroneous and contrary to the spirit of the minimum tax regime defined under section 113 of the Ordinance.
13. Learned counsel for the department has primarily focused on the insertion of Explanation through Finance Act, 2012 without appreciating its relevance to the Tax years under reference - and question was framed in the context of the effect of Explanation. Explanation added through the Finance Act, 2012, reiterated the definition of turnover. In the context of relevant Tax years, sub- section (3) of section 113 of the Ordinance is relevant. We re-settle the question at serial No (ii) in following terms, Re-settled Question of law at serial No. (ii).
"Whether on the facts and in the circumstances of the case, turnover, for the computation of minimum tax under section 113 of the Ordinance - re-inserted by Finance Act, 2009 - excludes income covered under the Final tax regime?
14. Answer to the re-settled question at serial No. (ii) is in the affirmative. Question at serial No. (i) was already answered in paragraph 4 hereinabove. Reference applications are decided in favour of the department. Matter is remanded to the Appellate Tribunal for re-determination and decision of the appeal of the taxpayer afresh, to the extent of computation of minimum tax, determinable under section 113 of the Ordinance, 2001 after hearing the parties. Appeals of the taxpayer for the Tax years under reference shall be deemed pending before the Appellate Tribunal.
15. Office shall send a copy of this order, under seal of the Court, to learned Appellate Tribunal, in terms of sub-section (5) of section 133 of the Ordinance.