MUHAMMAD HALEEM, C.J.-1. This judgment will govern Civil Appeals Nos. K-60, K-61 and K-62 of 1979 in which a common question of law is involved. These arise from the common judgment of the High Court of Sind dated 1st of February, 1578, by which I.T.Cs. Nos. 63, 64 and 65 of 1969 were disposed of in terms that a non-resident assessee was entitled to earn relief under section 15-A of the Income- tax Act (hereinafter referred "the Act") in spite of the clear provision of section 17(1) of the Act.
2. Leave to appeal was granted to consider as to whether section 17(1) being a charging section permits the deduction of the earned income allowance under section 15 of the Act.
3. The respondent herein was a non-resident and a partner in the firm of Chartered Accountants, A.F. Forguson & Company. The dispute relates to the deduction of the earned income relief under section 15-A of the Act for the charge years 1962-63, 1963-64 and 1964-65. He did not exercise his option under section 17(1) of the Act, and, accordingly, his income was taxed at the maximum rate without allowing him the benefit of earned income relief. He was also not given the benefit of proportionate share from his share of profits to the widow of a deceased partner. He went in appeal to the Income-tax Appellate Tribunal and succeeded as by order dated 13th of June, 1967, he was held to be entitled to such a relief. The appellant thereupon moved the Income-tax Appellate Tribunal for referring the following questions to the High Court for decision under section 66(1) of the Income-tax Act:-- "(1) Whether on the facts and circumstances of the case a non-resident assessee liable to pay tax on his total income at the maximum rate of 30% is entitled to earned Income relief under section 15-A of the Income-tax Act in spite of the clear provision of section 17(1)(a) of the Act.
(2) Whether on the facts and circumstances of the case the Tribunal was competent to pass an order under section 35 of the Income-tax Act."
But the Tribunal by its order dated 4th of March, 1969, dismissed his application. The appellant thereupon filed separate applications in the High Court under section 66(2) of the Act for a decision of these questions. However, before the High Court the second question was not pressed, and the first question was answered in the affirmative.
4, By sections of the Income Tax (Amendment) Ordinance, 1945, promulgated on 28th of April, 1945, clause "(6-AA)" in section 2 as defining what was "earned income" was inserted, and section 15-A was added by which the assessee was given the benefit of "earned income allowance". By section 5 of this Ordinance sub-section (5) was inserted in section 17 which provided that the expression "total income" shall for the purpose of determining the amount of income payable by the assessee be deemed to refer to the income so reduced by an allowance of "earned income". By Act No. XXIII of 1948, subsection (4) of section 17 was omitted and sub-section (5) was renumbered as sub- section (4). Again sub-section (4) was omitted by Ordinance XV of 1959. Clause (6-AA), section 15- A and sub-section (4) of section 17 originally inserted as sub-section (5) read as under:-- "(6-AA) "earned income" means any income of an assessee who is an individual, Hindu undivided family, unregistered firm or other association of persons not being a company, a local authority, a registered firm or a firm treated as registered under clause (b) of sub-section (5) of section 23-
(a) which is chargeable under the head "salaries", or
(b) which is chargeable under the head "profits and gains of business, profession or vocation1 where the business, profession or vocation is carried on by the assessee, or in the case of a firm, where the . Assessee is a partner actively engaged in the conduct of the business, profession or vocation, or, (c)which is chargeable- under the' head "other sources" if it is immediately derived from personal exertion or represents a pension or superannuation or other allowance given to the assessee in respect of his past services or the past services of any deceased person;- and includes any such income which though it is the income of other person, is included' n the assessee's income under the provision of this Act, but does not include any such income which is exempt from tax under sub-section (2) of section 14 or under a notification issued under section 60; 15-A. Exemption of portion of earned income.-The tax shall not be payable by an assessee in respect of such portion, if any, of the earned income included in his total income as is directed by the annual Act of the Central Legislature fixing the rate or rates of tax for any year to be deducted in making an assessm ent for that year, and for the purposes of determining the rates at which income-tax (but not Super-tax) is payable by the assessee for that year his total income shall be deemed to be the total income reduced by the said portion."
(5) Where the amount of the total income of any assessee is deemed to be the total income reduced under the provisions of section 15-A by an allowance for earned income, the expression 'total income' in this section shall, for the purpose of determining the amount of income tax (but not super-tax) payable by the assessee, be deemed to refer to his total income so reduced."
And further the words "or the income-tax which would be payable on his' total income if it were the total income of the person resident in the taxable territories whichever is greater" were inserted in sub-section 1(a) of section 17 after the words "maximum rate" by section 3 of Ordinance XV of 1979.
Again the words "taxable territories" were substituted by the word "Pakistan" by section 6 of Act I of 1962. Lastly, by section 8 of Finance Act, 1965, a proviso was added in section 15-A which reads as under: "Provided further that the exemption under this section shall not apply in the case of an assessee who is not resident in Pakistan unless the tax payable by him is determined with reference to his total earned income under the first proviso to sub-section (1) of section 17."
5. The contention of the learned counsel for the appellant was that the words "total income" in sub- section (1) of section 17 meant total income as computed in accordance with section 16 of the Act; and, that it being charging section it should be interpreted according to the tenor of the words 'total income' as not including the benefit of any earned income allowance under section 15-A of the Act.
6. The income-tax Appellate Tribunal held that the relief under section 15-A is allowable to a non- resident as well as a resident as only the word "assessee" has been used which does not create any distinction in this behalf and it was only in 1965 that by a specific amendment in the shape of a proviso to section 15-A that this benefit was denied That this was the consistent view of the Department is also Obvious from the order.
7. The High Court laid emphasis on the meaning of the expression "total income" as by the definition clause' it "can only be computed in the manner provided by the Act, that is to say, after giving full effect to the provisions of the Act which allow deductions and allowance", that is, that full effect should be given to section 15-A. There was, therefore, no repugnancy between section 17 and section 15-A and hence no question of any implied repeal arose. The High Court while testing the argument also held that if the interpretation as advanced by the counsel was accepted then the benefit of section 15-A could not also be given to a resident assessee and in that context section 15-A would have no efficacy, which cannot be the case.
8. As to the next submission that the quantum of tax was determinable with reference to the "total income", the High Court held: "All that section 17 seems to provide is that in the case of a non-resident who does not make a declaration under the provisions he would be liable to income-tax at the maximum rate on the whole of his total income without the benefit of the slab system or initial margin of exemption."
9. Adverting now to the contention raised by the counsel for the appellant, it would be worthwhile to consider first clause (6-AA) of section 2 of the Income-tax Act, 1922. By this new clause inserted in 1 945, the Legislature recognised and maintained the distinction between "earned' and "unearned" incomes which applies alike to residents and non-residents on the premises of personal exemption while at the same time where this element is absent like in the case of Companies and Local authorities, such allowance is not admissible for deduction according to its plain reading. This clause read in the context of section 1 5-A is referable to the annual Finance Acts which determines the extent to which such earned incomes may be excluded from the total income for income-tax only and not for super-tax. This allowance is worked out after the income has been computed with reference to the other provisions of the Act. Under section 15-A tax is not payable on such an allowance which has to be deducted in making an assessment for that year; and which for the purpose of determining the rate on which income-tax but not super-tax is payable, the assessee's total income has to be reduced by an amount equal to such an allowance.
10. Sub-section (5) of section 17 introduced in 1945 in the Act expressly signified to the total income in this section as one reduced by the allowance under the provisions of section 15-A for the purpose of determining the amount of income-tax (but not super-tax) payable by the assessee.
Statutorily, therefore, it was deemed to mean the total income so reduced.
11. Now as to what the true meaning of the words "total income" is, the definition clause is pivotal as to the meaning it conveys: "Total income means total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act........."
Sub-section (4) again refers to ait incomes, profits and gains derived from whatever source. The words "computed in the manner laid down in this Act" in section 2(15) of the Act refer to the computation of income in section 16(1)(a) of the Act. It would be of relevance to mention that section 15-A was inserted in section 16(1)(a) after the word 'section 14' simultaneously in the Income-tax Act of 1922. This was not without a purpose as in spite of the "earned income" being included, as according to its definition, in the total income yet it had to be excluded while determining the rates at which income-tax (but not super-tax) was payable by the assessee to whom the exemption was allowed. While commenting on sections 16(1)(a) and 2(15) of the Act, this is what the learned commentators (Kanga and Palkhivala) in their treatise on the Law and Practice of Income-tax, Fourth Edition, Volume I, at page 486 said: "that exemption granted under this Act is of two kinds; certain classes of income are exempted from tax and also excluded from the computation of total income, while certain other classes of income exempted from the tax are to be included in the assessee's total income."
They further said:-- "The effect of including exempted income in the assessee's total income is mainly two-fold. First, the tax payable by the assessee is determined with reference to the total income and, therefore, exempted income which is included in the total income would affect the rate of tax applicable to the chargeable portion of the total income, Secondly, in several cases reliefs are given or calculations made with reference to the total income."
Chagla, C.J., in Commissioner of Income-tax vs. N.M. Raiji 1949 ITR 180 while giving out the purport of section 16 in the context of section 25 (4) observed: "The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income."
Accordingly, the words "total income" in section 17,(1) would have not different meaning than what, sections 2(15) and 16(1)(a), despite its further amendment by Ordinance XV of 1959 convey.
Necessarily, therefore, the total income cannot be construed to include the whole income as it would then violate the scheme and the provisions of the Act which exclude certain classes or income from tax and also those while being regarded as income are yet exempted from the tax.
Any sum exempted under section 15-A would accordingly affect the rate of tax applicable to the chargeable portion of the total income.
12. I may here point out that although sub-section (5) which was later renumbered as sub-section
(4) of section 17 was deleted in 1959 yet the statutory benefit under section 15-A was admissible not only by reason of its own force but also on the plain language of sections 2(15) and 16(1)(a).
Section 15-A could not be deemed to have been repealed by section 17 (1) is also obvious as according to the scheme of the Act and the meanings assigned to the words "total income" and its computation, it cannot be regarded as inconsistent with section 17(1) as the words "total income" in that section has no different meaning. That this benefit is not now admissible is apparent by the addition of the proviso inserted by section 8 of the Finance Act XV of 1959 in section 15-A which prohibits the grant of this exemption under section 17(1). Accordingly, the departmental interpretation of section 15-A was unexceptional and so was the judgment of the High Court.
13. Now as to what clause (a) of section 17(1) conveys, there cannot be any dispute as to its meaning. The first part provides for the income tax being levied at the maximum rate on the total income without the benefit of any slab system while the second part allows the collection of tax on the total income notionally as if it is the total income of a person resident in Pakistan inclusive of the benefit of slab system, whichever is the greater.
14. For the foregoing reasons, the appeals are without any substance. Accordingly, we dismiss the appeals, but with no order as to costs as the respondent in these three appeals is ex parte.