A.A. ZUBERI, ACCOUNTANT MEMBER.-1. These six appeals have been filed at the instance of the Department to agitate against consolidated order dated 7th July, 1990 passed by the learned Commissioner (Appeals), Faisalabad in respect of the assessment years 1979-80, 1980-81, 1981-82, 1983-84, 1984-85 and 1985-86. The Respondent-A.O.P. (a private trust) runs an Educational Institution.
2. The learned D.R. Explained that the respondent was registered by a Deed of Test in May, 1963 and approval from the C.B.R., under section 15-D of the repealed Income Tax Act, was obtained which lapsed on the promulgation of the Income Tax Ordinance, 1979. The C.B.R, consequently informed the Respondent that fresh application for approval under clause (d)-of sub-section (1) of section 47 of the Income Tax Ordinance may be filed. The assessing officer then initiated proceedings by issuing statutory notices under section 56 etc. And finally completed assessments, determining Total Income for the assessm ent year 1979-80 at Rs. 5,85,565, for 1980-81 at Rs. 11,20,496; for 1981-82 at Rs. 14,11,296; for 1983- 84 at Rs. 36,33,720; for 1984-85 at Rs. 33,63,483 and for 1985- 86 at Rs.
7,14,558. The finding by the assessing officer was that the Respondent had the motive of earning profits through investments on which dividend, interest and rental income was earned and that the claim of exemption under clauses (93) and (94) of the Second Schedule to the Income Tax Ordinance, 1979 was not tenable. The assessing officer further held that on examination of the books of accounts and other details, with' a view to determine whether any objects proclaimed in the Trust Deed were adhered, no basis could be found to hold the Respondent as carrying on religious and charitable purposes and that the Respondent had all along applied the profits earned from the business, which had not been carried on in the course of the carrying out a charitable purpose. He finally concluded as under:- "Keeping all the facts and the circumstances of the case in view, the Assessee's claim of exemption under clauses (93) and (94) of the Second Schedule to the Income Tax Ordinance, 1979 is rejected and income earned by the private trust not applied for religious and charitable purposes, is treated and liable for taxation under the Income Tax Ordinance, 1979."
3. On appeal, the learned Commissioner, through an exhaustive order, reversed the finding by the assessing officer and declared the Trust exempt under clauses (93) and (94) of the Second Schedule because, according to him all the objections and findings by the assessing officer were without any legal and factual substance or justification. Forming the view that income of the Trust was exempt, he annulled the assessment for the above six years with which the Department feels aggrieved. The Department has challenged the findings by the learned Commissioner in respect of the following:--
(i) Exemption under clause (d) of sub-section (1) of section 47 of the Income Tax Ordinance to charitable institution has no relevancy or connection with the exemption admissible under clauses
(93) and (94) of the Second Schedule;
(ii) the Trust had not carried on any charitable work since its inception except providing funds to Pakistan Educational Trust running the Crescent Model School, Lahore which is not meant for the general public but for children of the elite of the Society hence cannot be said that the institution was run for the purposes of general public;
(iii) the argument that the Trust could not build a hospital because the Government failed to provide necessary land is misplaced because the charitable hospital can be established anywhere;
(iv) sole purpose of the Trust is investment in the Company floated and managed by the Crescent Group of Industries because the Testees are the Directors of these Companies with the result that the donations of the Test are ploughed back in the Companies of the Crescent Group;
(v) annual earnings of the Crescent Foundation have no relevancy with the charitable work done by the Test; and
(vi) the Test failed to provide necessary details in response to notices under section 62 issued twice.
4. We have heard the arguments from both the sides and examined the record before us. We do not hesitate to pay compliments to the learned Commissioner who not only examined all aspects of the case but also scanned the case law, set out the issues in controversy and reached conclusions through exhaustive, elaborate and well-reasoned judgment.
5. It is to be firmly kept in mind it is not in dispute that the objects of the trust are charitable in nature all of which are covered by the definition contained in Clause (14) of section 2 of Income Tax Ordinance. Therefore, what is left to be judged is whether the income derived by the Respondent from property (or business) held under trust for religious and charitable purpose has actually been so applied or finally set apart for application therefore, as envisaged by Clause (93) of the Second Schedule; and further that the income derived by the respondent must by way of voluntary contributions was applied solely for religious or charitable purposes of the institution. The assessing officer's precise objection are: "only fraction of donations was utilized for education purposes; only a fraction of the income declared in each year has been donated on the scholarships of the students; no work as respect^advancement of education was carried on despite availability of funds; funds of the trust were raised for the benefit of a particular group of industries whereby the donor got the relief in respect of donation and at the same time attained control over utilization of trust funds in their personal business in the shape of loans and shares sold to the Respondent; money set apart is in excess of the prescribed limits which should have been invested in NIT or other Government Securities; the trustees were the real beneficiaries from Respondent Foundation; no work of 'general public utility" had been done for the general welfare of the public at large."
In short, the income of the trust not having been utilized for religious or charitable purposes, claim for exemption was not entertainable..
6. All the above objections by the assessing officer have been examined thread-bare by the learned Commissioner to reach the conclusion:-- "The observations by the assessing officer were of general, conjectural and irrelevant nature without clearly identifying or specifying any precise flaw or fault, deficiency or defect."
It was found by the learned Commissioner, as a fact, that the assessing officer had not cited even one single instance (or example) of disbursement for any uncharitable purpose or any activity not amounting to 'general public utility' despite complete details made available along with the return and balance sheets besides production of all books of accounts. If an objective examination of records and documents had been conducted, the learned Commissioner opined, it would have emerged that donations were applied for religious and charitable purposes only. Further, the learned Commissioner embarked on a detailed scrutiny of expenses incurred by the Respondent by way of donations to various educational institutions in the years 1979-80 to 1985-86 and listed them in his order to settle the discovery that the donations and disbursements on account of scholarships, education, assistance or medical aid could not be described as for non-charitable or non-religious purposes, and that there was truth in the claim by the Respondent that every penny of the trust money was strictly and fully applied for the charitable purposes. This fact, in the opinion of the learned Commissioner, appeared strongly valid because the assessing officer was not "able to cite even one single instance or example to the contrary except making sweeping and imaginary observations". As respects the alleged profit earning motive through investment in the purchase of shares of public companies, in fixed deposits in banks, and the investment in raising of buildings (etc), the learned Commissioner, in our opinion, rightly placed reliance on Supreme Court of Pakistan decision in re: Hamdard Dawakhan PLD 1980 SC 84 to hold that no legal bar applied to a charitable must so as to detract it from making investments in stock and shares, in bank deposits and in real estate. About the objection that the Respondent's assets represented investments in sister concerns, the learned Commissioner overruled as 'pointless' because, even the authors of a Test are not forbidden to become trustees thereof and that their relationship or position can in no way become illegal or detrimental as to the objects of the Test. The conclusion was reached by the learned Commissioner that the "bona fides of the tmstees investing the must fund in the shares .Of the companies instead of suggesting any mala fides on their part appears to be unfortunate and unfond suspicion of the Panel". As to the alleged insufficiency of the funds donated as scholarships to the students (etc.), the learned Commissioner arrived at the sound conclusion that the law does not envisage that the funds should be spent fully (and forthwith) though it was contemplated that these be "finally set apart for application" in specified purposes. In fact, on considering the quantum of the funds in each year, their application and the extent to which these were set apart; the learned Commissioner's unequivocal finding was "sizeable income was applied on charitable purposes in each year and the balance was set apart for application thereto in the future years particularly to meet the requirements of proposed projects." The learned Commissioner further held that the making of the safe investment of the Test fund is not only the legitimate right but also the sacred duty of the tmstees failing which they would have been guilty of breach of must.
Therefore, even if (by force of compelling circumstances) despite positive commitments for specific projects some funds remained idle for some time due to slow or insignificant progress, no blame could fall on the Respondent. The learned Commissioner repelled the allegation that donations were raised for the- benefit of a particular group of industries and the trust had been created to safeguard their interests and was not intended for general public utility because the evidence on record clearly showed that the objection was "unfounded, vague and based on conjectural remarks of general nature" particularly when the share holdings of the Trust was in the public companies quoted on Stock Exchange, which could not be characterised as sister (or allied) concerns of the Respondent Trust.
7. The learned D.R. Was unable to dislodge any of these findings of fact (based on correct legal analysis) by the learned Commissioner, but simply supported (in general terms) the objections listed by the assessing officer as both definite and solid, warranting no relief as was ordered by the learned Commissioner by declaring the Trust to be exempt from tax under Clause (93) as also under Clause (94) of the Second Schedule to the Income Tax Ordinance. Mr. Nadeem Zafar, the learned Counsel for the Respondent, on his tum vehemently insisted that income earned from property or business held under Trust and from voluntary contributions were always "actually applied or finally set apart" for application for the charitable purposes only and none else, morose because the Trust Deed prohibited the application of funds for any other purpose. To this end, Mr. Nadeem Zafar asserted, complete details were voluntarily (or on summoning by the assessing officer) submitted not only before the assessing officer but also before the learned Commissioner.
It was pleaded that findings by the learned Commissioner in addition to being elaborate were based on a judicious appraisal of facts and evidence.
8. After hearing rival arguments from both the sides, it appears expedient to first clear the deck as respect the scope and application of the provisions which would entail interpretation in the resolution of the issue in the appeals before us. There could be no controversy that the scheme of the Income Tax Ordinance is unambiguous that Clause 'd' of sub-section (1) of section 47 relates to the entitlement of an individual for allowance in respect of contributions to any institution or fund engaged in a "religious or charitable purpose" in Pakistan.
Clause (94) of the Second Schedule grants exemption from income tax to the income derived from voluntary contributions (on which allowance may or may not have been claimed by the individual making the contribution under Clause (d) of sub-section (I) of section 47).
Clause (93) grants exemption to the income (i) generated bv such property or business which is held under Trust or other legal obligation, and (ii) applied or set apart for religious and charitable purposes.
(Underlined here for emphasis)
The scope of each of the above three provisions of law is different, independent, not mutually exclusive but caters for different situations. This precisely is the conclusion drawn by the learned Commissioner with which there could be no quarrel. It also is well-settled by now that merely because the activities of a Test yield profit, will not alter its charitable character, nor will this affect eligibility for exemption under clause (93) or (94) of the Second Schedule.
9. Even a cursory reading of clause (93) is enough to reveal that right to exemption of income (derived by a religious and charitable trust) is created soon on satisfaction of the conditions prescribed thereunder e.g. Income is either actually applied or is set apart for application to the prescribed purpose. It thus follows there being no bar in the Trust Deed or the relevant law, prohibiting the investment in shares of the companies, bank deposits (etc.), such channelling of funds of the must would not amount to their utilization for purposes other than charitable, religious or of general public utility. It is to be clearly understood that the restriction is not with respect to the investment of the trust fund to generate income, but on the spending or application of the income earned, for which scope and purpose have strict criteria.
10. As about clause (94) the requirement of law is that the application of the income should be solely for religious or charitable purpose but it nowhere demands that the funds should not be allowed to accumulate or that income of a year should be necessarily and entirely spent during that year.
11. In the final analysis, whichever may be look having in mind either clause (93), or clause (94) of the Second Schedule, - we find that the income derived from contributions received from sources specified in these clauses were either actually spent or finally set apart for religious and charitable purposes or were appropriated solely for religious or charitable purpose of the Trust. We further HOLD that the operations as respect the acquisition and earning of income as also application of funds were in consonance with the requirements of law with the result that no justification existed for denying the benefit of exemption available in law. We, consequently, CONCUR with the view of the learned Commissioner to DECLARE that income of the respondent Trust shall be treated as EXEMPT from income tax under clauses (93) and (94) of the Second Schedule to Income Tax Ordinance, 1979.
12. However, we have a different view than the one expressed by the learned Commissioner with regard to the annulment of all the assessments (1979-80 to 1985-86). The finding by the learned Commissioner is contrary to his earlier I' decision (while dealing with the preliminary objection about _ initiation of proceedings) where he upheld the validity of the notices issued under section 56 of the Ordinance. Even at the cost of repetition, we deem it necessary to emphasis the subtlety as respect exemptions/exclusions provided in section '14 of the Ordinance and in the Second Schedule. These exemptions to income (or, classes of income), to persons (or, classes of persons) in clauses (a) to (d) in sub-section (1) of section 14 are "subject to the conditions and the extent specified.......... " in the respective clauses of the Second Schedule. Therefore, unless the exemption/exclusion is manifestly blanket, without any pre-conditions (or extent), specified by law, the obligation for filing the Return cannot be dispensed with because it is to be shown to the Department, and the assessing officer has to be satisfied that prescribed conditions have been adhered to. It -may be worthwhile to recall the observation by the learned Judges of the Supreme Court in re: Samina Shaukat Ayub Khan (PLD 1981 SC 85) while dealing with section 4(3) of the repealed Act, as under:- "It does not need much reasoning to see that if the source of income is not disclosed or satisfactorily explained, then it is not possible to hold that it was of a casual and non-recurring nature. All these factors and attributes can be ascertained only if the assessee places all the relevant facts before the Income Tax authorities, or otherwise the nature of the income and its source are clearly left in the realm of speculation............. The stringent requirements spelt out in this clause can only be satisfied by the disclosure of all the relevant facts, and not otherwise........"
In yet another decision reported as (1974) 29-Tax-221 (Rashid Banter), the learned Judges of the Lahore High Court ruled that whenever exemption from the general rule of taxation is sought "the onus lies on the Assessee claiming an exemption to establish that it is entitled to the concession".
In the case in had, the exemption is claimed under clauses (93) and (94) of the Second Schedule.
Both these clauses lay down conditions and the extent as respects the source of income and its application, entailing obligation on the claimant to establish that the case fully qualifies for exemption and, at the same time, casting a duty on the assessing officer to satisfy himself that no infringement has occasioned. Looked at from this angle and benefitting from the verdict of the superior Courts, as quoted above, the issuance of notice by the assessing officer under section 56 summoning the returns and their processing was valid in law. As the proceedings were validly initiated, we are firmly of the view, there cannot be annulment of assessments in the absence of deficiency in the assumption of jurisdiction or in the issuance of statutory notice. Therefore, while the proceedings could be "filed" there being no income liable to tax, or no tax levied after determining total Income because of entitlement to exemption; the proceedings and consequential assessm ents were not liable to be annulled. The learned Commissioner quite obviously fell in error in ordering annulment of assessments. His order is, therefore, MODIFIED to this extent.
CONCLUSION For the reasons spelled out hereinabove, we HOLD the assessment proceedings VALID but DECLARE the income of the Respondent EXEMPT in all the six assessment year ( = 1979-80 to 1985-86) resulting in Partial SUCCESS of the Department's appeals.