MUHAMMAD KHIYAR (JUDICIAL MEMBER).~1. These appeals at the instance of the assessee call in question the validity of the orders of learned CIT (A) dated 22nd November, 1987 for the charge years 1980-81 and 1984-85 and also of order dated 29th February, 1988 for the charge year 1986-87, whereby income of the assessee from the sources other than exploitation and sales of timber have been held as taxable and assessm ent order maintained.
The facts briefly stated are that the assessee (hereinafter referred as the appellant) is a Corporation established by the Government of N.W.F.P, for development and exploitation of forests in a scientific manner. It derived income from purchase and sale of trees. Original assessment for the charge year 1980-81 was made under section 63 of the Income Tax Ordinance (hereinafter referred as the Ordinance) at net income of Rs. Z 55,71,588. The assessment was set aside by learned CIT (A) for reconsideration under the law. During the fresh proceedings the appellant set up the plea that income was exempt from tax under clause (120-A) of the Second Schedule of the Ordinance. The I.T.O, accepted the plea in respect of income derived from felling of the trees but rejected the plea with respect to income from other sources and computed the income as under:- -
(i) Interest on investments as declared. Rs. 5,50,057.09 (ii) Interest on Bank balance as declared. Rs.
50,772.76 (iii) Interest on customers balances as declared. Rs. 2,16,517.37 (iv) Receipts on account of forfeitures as declared. Rs. 1,68,870.17 (v) Receipts on account of Registration fee as declared. Rs.
27,500.00 (vi) Receipts on account of sale of tender forms as declared. Rs. 17,461.00 (vii) Misc, income as declared. Rs. 21,003.57 Total. Rs. 10,67,722 Less interest expenses as claimed. Rs. 1,08,059 Balance net taxable income for the year. Rs. 9,59,663 {{TABLE MISARRNGED}}
2. For the charge year 1984-85 appellant filed return declaring nil income claiming the exemption as before. The assessm ent for this year was made under section 62. The I.T.O. Granted exemption of tax as allowed in the preceding year but did not extend the exemption to other sources of income and computed the same as under:--
(1) Interest on investment. Rs. 8,99,556 (2) Other income. Rs. 25,700 (3) Sale of scrap. Rs. 14,520 (4)
Misc, income. Rs. 7,169 Total income: Rs. 9,46,945 Less:-- (i) Interest on loans as claimed. Rs.
8,86,468 (ii) Bank charges as claimed. Rs. 6,823 Rs. 8,93,291 Net taxable income. Rs. 53,654 {{TABLE MISARRNGED}}
4. In the assessm ent year 1986-87 also nil income was shown and exemption was claimed by, the appellant. The I.T.O, did not deviate from the past and computed the income for the year 1986-87 as-under:-- Assessm ent year 1986-87 (a) Interest on investment. Rs. 18,39,735 (b) Rental charges. Rs. 26,186 (c)
Misc, income. Rs. 18,751 Total income: Rs. 18,84,672 Less: - (a) Bank charges and Commission. Rs.
23,094 Net taxable income. Rs. 18,61,578 {{TABLE MISARRNGED}}
5. Aggrieved from the treatment meted out by the I.T.O., the appellant filed appeals before learned CIT (A) who relying on the decision of ITAT in I.T.A. No. 605, dated 15th June, 1987 dismissed the appeals. It may be mentioned here that in I.T.A. No. 605 (PB) of 1986-87 the learned Single Bench extended the exemption to the income attributable to the sale of timber and held that interest from investment in the bank was not exempt from tax. Learned CIT (A) on the other hand extended the exemption to income from other sources like receipts on account of forfeiture, registration fee, receipts on account of sale of tender forms, rental charges and miscellaneous income etc.
6. Dissatisfied from the impugned order of the learned CIT (A) the appellant have now preferred these second appeals before the Tribunal. Since common questions of law and facts are involved in these appeals, we would dispose of these appeals by this single order.
7. We have heard Mr. Refaqat Babar, CA for the appellant and Mr. Abdul Latif Yousafzai, Advocate for the department. Learned AR addressed arguments on the issue of exemption from tax. Reliance was placed on clause (120-A) of the Second Schedule of the Ordinance and the following case law:
(1) (1979) 116 ITR 811 (H.C. Allahabad India) Addl. Commissioner of Income-tax vs. Abbas Wazir (P)
Ltd.
(2) (1978) 113 ITR 84 SC (India) Cambay Electric Supply Industrial Co. Limited V5. Commissioner of Income-tax.
8. Learned AR argued that income from investment in the bank is attributable to the sale of timber and thus is exempt from tax under clause (120-A) of the Second Schedule to the Ordinance.
9. On merits of the case, learned AR contested the imposition of tax on other items of receipts and argued that Rs. 25,700 shown as other income in the year 1984-85 relates to subsidiary company and is being taxed there. Miscellaneous income and income from scrap was also the income of subsidiary company, he argued. In reply learned counsel for the department placed reliance on the decision of ITAT (PB) in I.T.A. No. 605 and argued that contention raised regarding income of subsidiary company is not acceptable inasmuch as the plea was not raised either before the I.T.O, or CIT (A).
10. We have considered the respective contentions of the learned counsel for the parties and have also perused the record. We would like to frame the following issues for adjudication:
(i) Whether income derived from interest on investment in the bank is attributable to the sale of timber where such timber is obtained from felling of trees in forests;
(ii) Whether receipts on account of forfeiture, sale of tender forms, rental charges, registration fee and miscellaneous income are attributable to the sale of timber and hence taxable.
ISSUE NO.1
11. The appellant is claiming exemption from tax on the basis of clause (120-A) of the Second Schedule of the Ordinance. The clause reads as under: "Any income of a company, wholly owned by the Provincial Government as is attributable to the sale of timber where such timber is obtained from felling of trees in forests by or on behalf of the said company."
12. A careful reading of the exemption clause (120-A) would show that only that income of the company wholly owned by the Provincial Government is exempt from tax as is attributable to sale of timber where such timber is obtained from felling of trees in forests. The company is undoubtedly owned by the Provincial Government, but the question for determination is whether interest income is attributable to sale of timber obtained from felling of trees. The answer is No, because interest income is derived from another transaction relating to investment of deposits in the bank. This transaction has nothing to do with the sale of timbers. This issue earlier came up for adjudication before the Single Bench of this Tribunal in I.T.A. No. 605(PB) of 1986-87. It would be of advantage if the observations relevant to the issue are reproduced here, as it is based on the interpretation of word 'attributable' made in Cambay Electric Supply case cited before us by the learned AR. It was held that: "Interest undisputably is paid by the banks on any amount kept with them, without looking to the source from which it came. Whether it be the amount of sale price of timber or of any agricultural product, the banks would pay interest on it. For that matter any money is money for them and they do not have to look of the source. As such, income flowing from interest on bank deposits is income, and is taxable like any other income, unless of course, there is a specific exemption extended to it. There being no such exemption, I find that interest income would not be exempt.
However, the rest of the receipts seem exempt. They result from activities connected with the main activity viz. Felling of trees. These receipts include registration fee, rental charges, workshop charges and sale proceeds of scrap. Registration fee is paid by Contractors on seeking enlistment to work as such. Unless there be good prospects to work as Contractor, no one would like to be enlisted as such, paying fee in the process. The fee accordingly can be treated to have accrued as a result of tree felling operations.
Rental charges fall due when cut timber is kept on the assessee's premises and lifted later. The same are clearly due to tree felling operations.
And so are the workshop charges and scrap's sale proceeds. Workshop charges represent the amount received from subordinate offices for repairing their machinery used in tree felling. Such of the said machinery as becomes unfit for the further use is disposed of as scrap by sale. Both workshop charges and scrap receipts as much arise from tree felling operations. All these receipts, on the ratio of Indian Ruling aforequoted, can be regarded as part of income from the sale of timber, as the expression 'attributable to' has been construed as having wider import than the expression 'derived from' and the legislature by employing the former appears to have intended to cover receipts from sources other than the actual operations of tree felling. The meaning assigned to the word 'attribute' in Chamber's Twentieth Century Dictionary New Edition, 1964 as: to ascribe, assign or consider as belonging, that which is inherent in, or inseparable from that which can be predicted of anything, a quality or assessory etc. Also favours the above view.
Accordingly, I find that except interest income, rest of all receipts are exempt from tax and as a result I accept the appeal and direct that income of the assessee be recomputed."
13. We are in complete agreement with the findings arrived at by the learned Judicial Member of this Bench that income flowing from interest on bank deposits is income and is taxable like any other income unless specific exemption is extended to it and there being no such exemption interest income would not be exempt. The receipts like registration fee, rental charges, workshop charges and sale proceeds of scrap are the receipts arising from tree felling operation. The cases relied upon by the learned AR are of no help to him inasmuch as in Cambay Electric Supply Industrial Co. (supra) profit in respect of sale of machinery and buildings was regarded attributable to the business of generation or distribution of electricity which business the assessee- company was involved in. Similarly in the case reported in (1979) 116 ITR 811 (supra) the receipts from the sale of import licences were declared as attributable to the activity of manufacturing carpets within the meaning of section 2(8)(c) of the Finance Act, 1974. The Allahabad High Court followed the principle laid down in Cambay Electric Supply case. In this judgment the expression 'attributable to' was regarded as having wider import than the expression "derived from". The relevant observations are as under:- "As regards the aspect emerging from the expression "attributable to" occurring in the phrase 'profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression 'attributable to' and not the expression 'derived from'. It cannot be disputed that the expression 'attributable to' is certainly wider in import than the expression 'derived from'. Had the expression 'derived from' been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression 'derived from', as, for instance, in section 80J.
In our view, since the expression of wider import, namely, 'attributable to' has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity."
14. Applying the same principle to the case in hand we find that interest income is not attributable to the sale of timber obtained from felling of trees in forests. The principle laid down in the Indian ruling may of course help the appellant with respect to other receipts. We are, therefore, of the view that income derived from the investment in the bank is not attributable to the sale of timber obtained from felling of trees, and as such is not covered by the exemption clause (120-A) of the Second Schedule of the Ordinance.
ISSUE NO. 2
15. It is evident from the assessm ent orders as well as the impugned orders that following receipts have not been allowed exemption from tax:
(1) Receipts on account of forfeiture.
(2) Registration fee.
(3) Receipts on account of sale of timber forms.
(4) Receipts on account of rental charges.
(5) Misc, income.
(6) Other income.
(7) Sale of scrap.
16. The receipts from the activities such as forfeiture, Registration fee, sale of tender forms, rental charges, sale of scrap are connected with the main activity of felling of trees, and thus are exempt from tax under clause (120-A) of the Schedule. To the same effect are the findings of ITAT in I.T.A.
No. 605 based on the ratio of ruling of S.C. Of India (supra). Regarding miscellaneous receipts, learned AR stated that this is a fine received from Contractors in delaying the work. The contention could not be rebutted by the learned DR. We therefore hold this income attributable to the sale of timber and declare it exempt from tax. In so far as other income is concerned, we would direct for its verification as to whether it relates to subsidiary company and has also been taxed or not.
17. For the foregoing reasons we would declare the interest income as not exempt from tax while the income received from other sources mentioned above are exempt from tax.
18. The appeals succeed to the extent and in the manner indicated above. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.