' SALEEM AKHTAR, J.---The petitioner seeks leave to appeal against the judgment of the Division Bench of the High Court whereby the following question referred under section 136 of the Income Tax Ordinance was answered in the affirmative: "Whether the Appellate Tribunal is correct in law in holding that the levy of Workers' Welfare Fund is not an admissible expenditure to arrive at 'Total Income' for purposes of levy of 2% on total income under section 4(1) and (7) read with' section 2(a) and (i) of Workers Welfare Fund Ordinance, 1971."
2. The brief facts giving rise to this petition are that the petitioner is engaged in manufacture and sale of cigarettes. During the assessment years 1978-79 and 1979-80 it claimed deductions on account of payment made by it towards Workers Welfare Fund which is leviable under section 4(1) of the Workers Welfare Fund Ordinance, 1971. The point of difference between the parties is how this amount should be computed. The petitioner claimed that Workers' Welfare Fund (WWF) should be computed at a sum equal to 2% of so much of the "total income as is assessable under the Income Tax Act/Ordinance". According to the petitioner WWF should have been calculated on the basis of total income arrived at after deducting the amount payable towards the Fund. The Income Tax Officer did not agree with this treatment. He first calculated the total income as assessable under the Income Tax Act/Ordinance then calculated 2% of such total income and thereafter granted allowance of the amount so calculated while calculating the income tax. The Assistant Appellate Commissioner accepted the petitioner's appeal but the Income Tax Appellate Tribunal did not agree with that order. The petitioner then filed application under section 136 of the Income Tax Ordinance and the aforestated question was referred to the High Court. The learned Judges of the High Court observed that:- "No doubt, subsection (7) of section 4 of the Workers' Welfare Fund Ordinance provides that any payment made to the said Fund shall be treated as an expenditure for the purposes of assessment of income-tax but if the legislative intent was to make such expenditure and expenditure under section 10 of the Repealed Income Tax Act or section 23 of the Income Tax Ordinance, a corresponding amendment would have been made therein in this regard. Consequently, it would be erroneous to assume that the amount payable to the Fund under section 4(1) is to be calculated at the time of computation of the assessable income of the assessee. Subsection (1) of section 4 clearly indicates that the said two per cent is to be calculated on the basis of the assessable income of the assessee, as pointed out earlier, and unless such income is determined, it would not be possible for the Income Tax Officer to calculate the amount payable to the said Fund."
3. The entire controversy revolves round the interpretation of section 4 of the Workers Welfare Fund Ordinance which reads as follows: "4. Mode of payment by. And recovery from Industrial establishments.
(1) Every industrial establishment, the total income of which in any year of account commencing on or after the date specified by the (Federal Government) in the Official Gazette in this behalf is not less than one lac of rupees shall pay to the fund in respect of that year a sum equal to two per cent of so much of its total income as is assessable under the (Ordinance) or would have been so assessable but for the exemption made by section 15 BB thereof.
(2) Every industrial establishment which is liable under subsection (1) shall pay the amount due from it to the Income' Tax Officer having jurisdiction over the industrial establishment for purposes of the Act.
(3) The industrial establishment shall, on or before the date on which it is required to furnish a return of income under (section 55 of the Ordinance) pay the amount due from it under subsection
(i) calculated with reference to the total income reported in the said return.
(4) At the time of making an assessme nt under (the Ordinance ) or as soon thereafter as may be, the Income Tax Officer shall, by order in writing, determine the amount due from industrial establishment under subsection (1), if any, on the basis of the income so assessed after taking into account the amount paid by the industrial establishment under subsection (3) in respect of the year and the industrial establishment shall pay the amount so determined on or before the date specified in the order.
(5) Any change by way of enhancement reduction in the assessed income subsequent to the assessm ent made under (the Ordinance) shall be given effect to pay adjustment of the amount due under subsection (1).
(6) Any amount paid by an industrial establishment under subsection (3) which is found, on the basis of an order in appeal or revision under the (Ordinance) to have been paid in excess shall be refunded to it by the Income Tax Officer.
(7) The payment made by an industrial establishment to the fund under subsection (1) shall be treated as an expenditure for the purposes of assessment of income tax."
4. After hearing Mr. Iqbal Naeem Pasha, the learned counsel for the petitioner, we issued notice to the respondent, in response to which Mr. Sheikh Haider has appeared and we have heard the learned counsel for both the parties. Mr. Pasha has contended that any amount paid to WWF under section 4, subsection (1) of the Ordinance should be treated as an expenditure for the purposes of assessm ent of income tax as provided by subsection (7) of the said section and consequently such amount should be deducted at the time of computation of the assessable total income of the assessee. In other words it should not be included in the total income assessable under the Income Tax Act/Ordinance. A perusal of section 4 reproduced above will show that it provides a complete machinery for computation, adjustment, deduction and payment of the amount payable to the Fund. Section 4, subsection (1) is the charging provision whereby every industrial establishment total income of which is not less than one lac of rupees in a year is rquired to pay to the Fund in respect of that year an amount equal to 2% of its total income as assessable under the Income Tax Act/Ordinance or would have been so assessable without taking into A consideration the exemption made under section 15BB. The procedure for assessment of the amount payable has also been provided in this section. The calculation of this amount should be with reference to the total income assessable under the Income Tax Act/Ordinance. Subsection (7) of section 4 provides that the amount so paid shall be treated as a business expense in assessing the income tax. The question is whether 2% should be calculated on the total income after excluding the amount paid to the Fund from it. According to Mr. Pasha as the amount paid to the Fund is otherwise to be treated as a business expense under the Income Tax Act/Ordinance 2% should be calculated after deducting the amount paid to the Fund from the total income. According to the learned counsel WWF is chargeable at the rate of 2/102 instead of 2/100.
5. The controversy is with regard to the manner in which the total income is to be computed for the purpose of levying 2% Workers' Welfare Fund. The total income tax is assessable as provided by the Income Tax Act/Ordinance. So far the Act is concerned, the definition of total income was given in section 2(15) which reads as follows: "Total income means total amount of income, profits and gains referred to in subsection (1) section 4 computed in the manner laid down in this Act ' Under the Ordinance, section 2(44) reads as follows: "Total income means the total amount of income referred to in section 11, computed in the manner laid down in this Ordinance; and includes any income which, under any provision of this Ordinance, is to be included in the total income of an assessee."
6. Both the definitions are almost to the same effect and there is no material change. The Income Tax Act, 1961 of India, under section 2(45) maintains the same definition as in the Income Tax Act, 1922. The method of computation of total income is to be regulated from various provisions of the Act/Ordinance. Section 4 of the Act and section 9 of the Ordinance charge total income to tax but under the scheme and the provision of these statutes exemption, allowance and deduction have been provided for the purposes of calculating the income tax. There are two kinds exemptions granted by the Act/Ordinance. According to Palkhiwala and Kanga in the Law and Practice of Income 'Tax, 8th edition "certain incomes are exempted from charge and are also excluded from the assessee's total income Certain other incomes are exempted from income tax but they are to be included in the assessee's total income". It follows that the total income of an assessee may include the amount which is exempt from tax. Under the Ordinance there seems to be some deviation from the Act as section 49 of the Ordinance provides, as follows: "49. Allowance to be treated as deductions from income.---Save as otherwise provided in this Ordinance, any allowance admissible or any sum exempt from tax under any provision contained in this Ordinance shall be included in the total income, but may be deducted from such income for the purposes of computing the tax payable by an assessee."
7. Under the Ordinance the deductions have been provided under sections 18, 20, 23 and 31 while other allowances and exemptions have been mentioned in Chapter-V, sections 39 to 48. In view of section 49 all admissible allowances or income exempted from income tax shall form part of the total income unless otherwise provided by the Ordinance.
8. The learned counsel for the petitioner has relied on section 4(7) of the WWF Ordinance to claim that the amount payable to the Fund is to be treated as an expenditure and contended that it should be excluded from the total income. Nothing has been shown in the Ordinance which provides for exemption of such amount from including in the total income of the assessee. So far the Act is concerned, reference could be made to section 10(2)(xvi) to claim exemption from incomes tax. This plea may not be available to the assessment for the year 1978-79 because the WWF Ordinance has specifically provided for such deductions and therefore general provision of the Income Tax Act cannot be pressed for such reliefs. It was probably for this reason that given by him was that even "suspicion" had to be based on definite information based on material evidence and this was at least not so in the case of the brick-kiln. This contention of the learned A.R.
Is not correct because the capacity of the kiln has been taken from the information available with the Department and it is not a figure adopted in a vacuum. Second argument given by the learned A.R. Was that the definite information based on material evidence had to be in the case of the assessee itself and the case could not be selected by the RCIT by making a reference to other cases although in the same nature of business. This contention of the assessee does not seem to be of any validity because in such an eventuality, as asserted by him, resort could be taken to action under section 65 of the Ordinance. This provision had been deliberately introduced in the Self-Assessm ent Scheme to enable the Department to take action in such cases where the incomes declared were suspected to be not reasonable vis-a-vis other assessees in the same line of business.
4. Another objection raised was that the CBR's Circular No,1 of 1991 was an open letter with C.
No,1(3)/DT/-14/91, dated 1-4-1991 addressed to RICT Karachi communicating in the same letter that no cases were to be selected on the basis of this Circular by RCIT after 5-4-1991. The learned A.R.
Insisted that this letter must not have been received by the RCIT, Northern Region by 7-4-1991 because according to him even if a Circular is approved on a certain date some time is taken in the administrative follow up and the time gap in issuing a letter by the CBR to the field officer is ten to 15 days. It was further asserted by him that letter issued by the CBR on 5-4-1991 became operative from the same date, so the RCIT could not initiate any action on 7-4-1991. The learned D.R. On the other hand took the plea that the letter issued by the CBR was to the RCIT Karachi and the same was not expected to be received by the RCIT, Islamabad (Northen Region) by 7-4-1991.
This contention of the learned D.R. Is not convincing because copies of all important letters issued by the CBR are sent to all the RCIT's even if the letter is addressed to a particular RCIT. The copy of the letter despatched by the CBR on 1-4-1991 intimating that no action should be taken after 5-4- 1991 must have been received by the RCIT, Islamabad being a local office. On seeing the actual Circular (placed on file) it has been found that it is issued to all the Regional Commissioners including Regional Commissioner, Islamabad. May be it was not put before him by the time he allowed to take resort to this Circular. Secondly the instructions issued by the CBR become operative from the same date on which they are issued. The time of receipt by the Field Officers is legally of not any importance. The learned CIT(A) has set aside the case on an entirely different issue i,e, according to him, enough opportunity had not been afforded to the assessee as the appellant had never been informed about the fate of his adjournment application. We are of the considered opinion that the instructions issued by the CBR not to take resort to action under Circular No,1 of 1991 became operative from 1-4-1991 and the RCIT could not initiate any action after 5-4-1991. As a result the ITO is directed to accept the return filed for the assessment year 1990-91 under Self-1 Assessm ent Scheme.
5. This disposes of the appeal as above.