FARHAT ALI KHAN, CHAIRMAN.--1. These departmental appeals are directed against the consolidated order of learned Appellate Assistant Commissioner recorded by him on 3rd Match, 1986, relating to assessm ent years 1981-82 and 1982-83. The appeals, however, are restricted to issues pertaining to deduction of wealth tax paid and statutory allowance of l/6th on income from house property.
2. It appears that during the relevant assessment years the respondent claimed deduction of Rs.
20,52$ and Rs. 26, 650 as wealth tax paid in $ach assessment year involved. The Income Tax Officer, however, disallowed the same in each assessment year and except the difference in the amount involved made the following remarks in both assessment years:-- "Since the assessee has made no payment of wealth tax during the accounting period relevant to assessm ent year 1981-82 the amount of wealth tax paid on 25th August, 1983 cannot be deducted from income for the year under consideration. The wealth tax deduction can be allowed in the year of payment."
Having been aggrieved and dissatisfied the respondent went up in appeal in each assessment year and the learned Appellate Assistant Commissioner allowed them by his consolidated order impugned before me with the following observation:- "The Income Tax Officer has incorrectly disallowed the payment of wealth tax which has been actually paid. He is, therefore, directed to verify the payment and allow the amount in both the years."
This time the Department feels aggrieved and has come up in second appeal.
3. Mr. Yousuf Sharih, the learned D.R. Vehemently argued that the Income Tax Officer was right in disallowing the amount of wealth tax paid in each assessment year involved as the same was not paid admittedly within the accounting period. Elaborating his argument the learned D.R.
Vehemently argued that since the income year ended on 30th June, 1981 and 30th June, 1982 relating to assessm ent years 1981-82 and 1982-83, the wealth tax paid on 25th August, 1983 was admittedly not paid within the income year concerned, hence the respondent was not entitled to claim it as deduction during both the assessment years. According to learned D.R. The right of the respondent regarding any deduction stood very much dependent on the date of payment: if the payment was made before the expiry of income year, a right of deduction accrued in favour of the respondent, but if it was paid after the expiry of the income year, the deduction could be made in the following assessm ent year as the right accrued during the income year relatable to the next assessm ent year. Mr. Muktada Karim, the learned counsel for the respondent, however, supported the impugned order on two grounds; firstly, he contended that since under clause 129 of Second Schedule of the Income-tax Ordinance, the amount of wealth tax paid was exempt, therefore, the wealth tax paid before the assessm ent could be framed was to be deducted regarding the income year for which it is paid irrespective of the date of payment. According to him, the assessments for both the assessm ent years were framed on 23rd November, 1983, but the respondent had revised her returns on 25th August, 1983, so as to claim the wealth tax paid on the same date as deduction regarding both assessm ent years. The second leg of argument of the learned counsel is that the wealth tax paid is falling within the ambit of clause (c) of sub-section (1) of section 20 of the Income-tax Ordinance and since sub-section (4) of section 20 empowers an assessee to claim the deduction at his option either in the income year in which it is paid or in the income year to which it relates. According to the learned counsel since the respondent amended the returns and claimed deduction relating to income year involved, the same should have been allowed by the Income Tax Officer irrespective of the date of the payment. Replying to a question as to whether clause (c) of sub-section (1) of section 20 dealt with the wealth tax paid also, the learned counsel submitted that the word 'tax' as used in the clause included wealth tax as well. He further contended that the word 'Government' as used by the Legislature in aforesaid clause included both the Federal as well as Provincial Governments. The learned counsel has, therefore, supported, the impugned order on the basis of both the arguments mentioned above.
4. I have heard both the learned D.R. As well as learned counsel for the respondent. As far as clause 129 of Second Schedule of the Income-tax Ordinance is concerned, I think the submission of Mr. Yousuf Sharih, the learned D.R. Carries much weight. Section 9 of the Income-tax Ordinance which creates the charge of income-tax lays down that such tax is to be charged, levied and paid for each assessment year commencing on or after the first day of July, 1979 in respect of the total income of the income year, or years, as the case may be. Again, section 14 of the Income-tax Ordinance refers to the exemption laid down in Second Schedule, which are to be excluded from the total income before any tax is worked out. Thus, it is clear that the income-tax is to be charged for any assessment year on the total income which is arrived at after excluding the exemptions as laid down in the Second Schedule. In other words, the income-tax is to be charged on the total income which is arrived at, at the time of expiry of an income year. If the submission of Mr. Muktada Karim is accepted it would mean and imply that the income-tax would be chargeable on the total income as it stands on the date when the assessm ent is framed. In other words, it would be accepted that the income-tax would be worked out on the total income which finally emerges out on the date of assessment order after allowing revision of the returns which is permissible under section 57 of the Income-tax Ordinance. But, with due respect to the learned counsel, I think that section 57 does not allow revision of the return on account of any liability or any right which accrues after the expiry of the income year, except in those cases which fall under sub-section (4) of section 20 of the Income-tax Ordinance, with which I shall be dealing subsequently. To my mind, section 57 permits such type of omissions or wrong statements to be rectified which pertain to a right or liability which has already accrued within an income year. As such, in my humble opinion clause 129 refers to any amount of wealth tax paid by an assessee within the span of an income year otherwise out of logical necessity, the assessee would also be entitled to include in his return an income which accrues to him after the expiry of the income year but this surely would not be in accordance with the legislative intent. It is, therefore, clear that if an income earned after the expiry of an income year cannot be included in the total income of that income year under section 57, in the same way a deduction also cannot be allowed in an income year regarding a liability which is discharged after the expiry of that income year. The first submission of Mr. Muktada Karim, therefore, fails and is rejected accordingly.
5. Now, turning to the second leg of argument of the learned counsel It me firstly reproduce clause
(c) of subsection (1) of section 20 of the Income-tax Ordinance. It reads as follows:- "20. Deductions.-(l) In computing the income under the head 'Income from house property1 the following allowances and deductions shall be made, namely:-
(a) .............................
(b) ..............
(c) the amount of any local rate, tax, charge or cess (being owner's burden) in respect of property or income from property paid to any local authority or Government, not being any tax payable under this Ordinance;
(d) ..............
(e) ...............
(f) ...............
(g) ..............
(h)..............
(i) ...............
Mr. Muktada Karim has argued that this clause allows deduction of wealth tax paid in computing the income fr6m house property. Before proceeding further It me mention here that even if it were so, it would not have been allowed during the relevant assessment years as the payment was made after the expiry of both the income years involved for the simple reason that the respondent had not given any written option under section 20(4) of the Income-tax Ordinance.
6. Mr. Muktada Karim has also argued that the word 'tax' as used in this clause includes wealth tax.
Mr. Yousuf Sharih, on the other had, argues that the word 'local' should be read before the word 'tax, charge or cess'. The word 'tax' has been defined by sub-section (43) of section 2 of the Income-tax Ordinance and means income-tax, super tax, surcharge and additional tax chargeable or payable under this Ordinance, and includes any penalty, i.e or other charge or any sum or amount leviable or payable under the Income-tax Ordinance. It is thus clear that the word 'tax' as used in this clause does not include wealth tax for the simple reason that it is not a tax payable under the Income-tax Ordinance. However, the fact remains that the Legislature has used this word 'tax' in this clause. As such, the word 'tax' should be given the connotation which it carries in common parlance. Thus, it could include the wealth tax as well. However, the question as to whether it does mean and include Swealth tax' would depend on the interpretation of the word 'Government'. But, before adverting to this question It me point out at this juncture that the argument of Mr. Yousuf Sharih that the word 'local' should be read before 'tax, charge or cess' does not appear to be correct for the simple reason that the Legislature has used comma after expression 'local rate'. The word 'local', therefore, cannot pre-fix itself to the words 'tax', 'charge' or 'cess', according to the known rules of English Grammar.
7. Now turning to interpretation of the word 'Government' Mr. Muktada Karim has argued that this expression means Federal Government. Relying on clause (a) of sub-section (1) of section 17 the learned counsel argues that whenever the Legislature wants Provincial Government to be referred to the expression 'Provincial Government' has been used. Mr. Yousuf Sharih, the learned D.R.
However, has contended that the expression 'Government' as used in this clause refers to the Provincial Government only as it is used along with expression 'local authority'. I have heard both the learned counsel for the respondent as well as the learned D.R. It is true that in clause (a) of sub- section (1) of section 17 the Legislature has used the expression 'Provincial Government' in contra- distinction of expression"Federal Government'. However, I think that since the securities are issued by both Federal Government and Provincial Governments, the Legislature specifically used these expressions so as to convey its intent clearly and unambiguously. Otherwise it appears that whenever it intended to deal with the income-tax, it has used the expression 'Federal Government'.
In this connection I may refer to sub-section (2) of section 14 and sub-sections (1), (3) and (4) of section 133 of the Income-tax Ordinance. Thus, it is clear that the Legislature has used the expressions 'Provincial Government' and 'Federal Government' with reference to subjects with which it has to deal with. Now, the question arises as to why the expression 'Government' has been used in clause (c) of sub-section (1) of section 20 and, before I answer it, I would like to refer to the legislative history. It appears that before the Finance Act of 1957 amended clause (iv) of sub- section (1) of section 9 of the repealed Income-tax Act, the expression used in it was:-- "Provincial or municipal tax leviable in respect of the property."
However, the Finance Act of 1957 substituted aforesaid expression by the following:- "tax leviable in respect of property or income from property by a Local Authority or Provincial Government or the Central Government."
However, the Finance Ordinance, 1959 substituted this clause by an explanation which was to the following effect: "Explanation.- The expression 'annual charge' as used in this clause includes any leviable tax, in respect of property or income from property, by a local authority (including a Cantonment Board), or a Provincial Government ur the Central Government, but does not include the tax leviable under this Act."
It is thus clear that the Legislature has used the expression 'Government' after using various expressions in the evolutionary stage of this clause. The question, therefore, naturally arises as to why has it so happened? I have given my serious consideration to this aspect of the matter and in my humble opinion this change was the result of change in the Fundamental law of this country. In 1956 a Constitution was given to this country which had three legislative lists viz., Federal List, Concurrent List and Provincial List. The Finance Act of 1957, therefore, introduced the amendment so as to specifically deal with both types of taxes which could be charged on an immovable property by Provincial Government or the Central Government. Again, the explanation introduced by Finance Ordinance of 1959 also kept this principle in mind. But when the Income-tax Ordinance of 1979 was introduced, the country was ruled by the Constitution of the Islamic Republic of Pakistan, which was enacted and adopted by the people of Pakistan in 1973. Since in this Constitution there were only two lists viz. Federal List and Concurrent List, and since certain items which were previously included in the Provincial List fell within ambit of the Concurrent List of this Constitution, the Legislature perhaps deemed it fit to use the expression 'Government' in clause (c) of sub- section (1) of section 20 so as to allow any local rate, tax, charge or cess paid either to local authority or to Federal or Provincial Governments, as the case may be,- to be deducted while computing the total income from the house property. The expression 'Government' is, therefore, to be interpreted with reference to the law which imposes such local rate, tax, charge or cess. Thus, for or purposes as the law stands, the expression 'Government' would mean and imply that Government which has right to levy tax in respect of property or income from property and presently such Government is none else but a Provincial Government. The wealth tax, on the other had, is a tax on the capital value of the asset as laid down in Entry No. 50 of the Federal List. It, therefore, cannot be a tax in respect of a property for the simple reason that it is paid to Federal Government. Let me also mention here that had the intention of Legislature been to allow wealth tax to be deducted under clause (c) of sub-section (1) of section 20, there was no necessity for enacting clause 129 in Second Schedule. Since wealth tax liability has been clearly and specifically dealt with elsewhere it, therefore, necessarily follows that it cannot fall within the general provision of clause (c) of sub-section (1) of section 20. As a rule, a specific provision excludes itself from the ambit of general provision, hence the word 'tax' and the word 'Government' as used in clause (c) would mean neither wealth tax nor Federal 1 Government as contended by Mr. Muktada Karim. The learned counsel has also referred to various provisions of Wealth Tax Act, but I need not dilate on them for the simple reason that Entry No. 50 of the Federal List of the 1973, Constitution of the Islamic Republic of Pakistan authorises the Federal Government to levy tax on capital value of an asset and the Wealth Tax Act is such a legislation. If any provision of the Wealth Tax Act is interpreted otherwise, it would be ultra vires Entry No. 50 and no Court in India and Pakistan has held it as invalid piece of legislation. Please see (1969) 72ITR 741, (1965) 56ITR 724 (SC) and (1972)
83ITR582 (SC).
8. Thus, in view of discussion made above, I find no force in the second leg of argument of Mr. Muktada Karim as well. His submission regarding sub-section (4) of section 20 of the Income-tax Ordinance also does not appear to be available to him for the simple reason that the amount of wealth tax paid does not fall within clause (c) of sub-section (1) of section 20.
Now, coming to the second issue involved It me point out that the learned Appellate Assistant Commissioner has again fallen in serious error when he observed:-- The foregoing contentions of the A.R. Of the appellant are correct. As the Income Tax Officer stated clearly in the assessm ent order the hiring charges of Rs. 2,000 relate to fixtures and fittings which are certainly a part of the building and as such the rental charges are part of the annual value. In these circumstances l/5th of the repairs allowance is allowed on both the rent of the building as well as the fixtures and fittings."
When I enquired from Mr. Muktada Karim the nature of fixtures and fittings, he stated that they consisted of nothing but electricity lining and lamp-shades. However, he hastily added that the rent was bifurcated simply at the request of the tenant. As such, how could learned Appellate Assistant Commissioner come to a finding that fixtures and fittings were part and parcel of a building? I think that neither the Income Tax Officer nor the learned Appellate Assistant Commissioner have dealt with this issue properly and adequately. I, therefore, feel very much constrained to set it aside. The Income Tax Officer is directed to call upon the respondent to disclose the nature of fixture and fittings and then decide the issue afresh. If the respondent received Rs. 2,000 per month as the rent of such fixture and fittings which could fall within the definition of immovable property given on rent, he may take them into consideration for the purposes of statutory allowance.
10. The departmental appeals are, therefore, allowed on both the points. As far as deduction of wealth tax liability is concerned, the order of the Income Tax Officer is hereby restored for both the assessm ent years, but as far as statutory deduction is concerned, the Income Tax Officer is directed to decide the issue afresh in the light of observations made above.