MALIK MUHAMMAD QAYYUM, J.--(l). This judgment shall dispose of W.Ps. Nos. 13322/2000, 6095/2000, 13021 of 2000, 13170 of 2000, 13171 of 2000, 13172 of 2000, 13J74 of 2000, 13175 of 2000, 13176 of 2000, 12808 of 2000, 11647 of 2000, 12285 of 2000 and 6597 of 2000 in which common question of law which arises for determination is as to whether those industrial units and undertakings which had suffered losses were exempt under clause (118-C) of the Income Tax Ordinance from payment of turn-over tax in terms of section 80-D of the said Ordinance.
2. The brief background in which this dispute arises is that on 13-12-1990 the Federal Government issued Notification No. S.R.O. 1283(I)/90 whereby Second Schedule to the Income Tax Ordinance was amended, clauses (118-C), (118-D) and (118-E) were added and exemption was granted to the industrial units set up during the period specified in the said clauses subject to fulfillment of conditions mentioned therein. The exemption so granted and the Notification under which the exemption had been allowed was protected by the Protection of Economic Reforms Act, 1992 promulgated on 28-7-1992. The petitioners were enjoying the exemption granted as above.
However, in the years 1991 and 1992 by virtue of Finance Act, 1991 and Finance Act, 1992 section 80- C, section 80-D and section 80-CC were added to the Income Tax Ordinance, 1979. Section 80-D imposed a minimum tax on the turn-over of a company at a specified rate. The respondents started demanding payment of minimum turn-over tax under section 80-D from the industrial undertakings which challenged the demand before this Court. However, those petitions were dismissed. Aggrieved the petitioners in those cases went in appeal before the Supreme Court of Pakistan which decided the same vide its judgment reported as Messrs Elahi Cotton Mills Ltd. And others v. Federation of Pakistan and others (PTCL 1997 CL. 260 = PLD 1997 SC 582) para 54 of which reads as under:-- "54. In our view, since the provisions of Act XII of 1992 are subsequent in time and as they are contained in a special statute, they shall prevail over the provisions of section 80-D of the Ordinance, which was enacted through Finance Act, 1991, which was an earlier statute and which was a part of general statute. In this view of the matter, assessee who fulfil the conditions of the notifications referred to in the Schedule to section 6 of Act XII of 1992, are entitled to the protection.
The question as to wither a particular assessee fulfils the conditions of above notifications, is a question of fact, which will have to be determined by the hierarchy provided under the Ordinance and not by this Court. However, in order to eliminate multiplicity of litigation and to avert element of harassm ent to assessee, we have dealt with the legal aspect of the above contention though apparently it was not urged before the High Court as we do not find any mention in any of the judgments under appeal."
After the decision of the Supreme Court the respondents took up the stance that the judgment of the Supreme Court would be only applicable to those industrial undertakings which were petitioners before the Court and the others would be denied exemption. However, later on benefit of that judgment was extended to all. According to the petitioners the respondents with a view to wriggle out of the judgment of the Supreme Court particularly para 54 reproduced above took up the position that the exemption would be applicable only to those industries which have declared profit in the assessm ent year and not to those which have suffered losses. In this behalf a circular was issued by the Central Board of Revenue on 25-2-2000. This circular reads as under:-- "GOVERNMENT OF PAKISTAN REVENUE DIVISION CENTRAL BOARD OF REVENUE C. No. 150(it___ JD/99 Islamabad, the 25th February, 2000 To, All Regional Commissioners of Income-tax/Wealth Tax.
SUBJECT: JUDGMENT OF SUPREME COURT OF PAKISTAN REGARDING REFUNDING OF INCOME-TAX DEPOSITED UNDER SECTION 80D IN THE LOSS YEARS.
The provisions of clauses (ii___ ) to (ii___ ) of part of the Second Schedule to the Income Tax Ordinance, 1979, exempt "profits and gains" of industrial undertakings from tax, subject to the conditions and to the extent specified therein. The Income-tax Department, has, therefore, been collecting turnover tax under section 80D (sic) these industrial- undertakings.
The Supreme Court of Pakistan in the case of M/s. Elahi Cotton Mills Ltd. v. Federation, of Pakistan (PLD 1997 SC 582) held that the assessee who are covered by the notifications contained in the Schedule to section 6 of the Protection of Economic Reforms Act, 1992 (Act XII of 1992) are entitled to the protection in terms thereof (reference paras. 52 to 54 of the judgment) and are not obliged to pay tax under section 80D.
A question arose whether the cases declaring 'losses' would also be exempt from the payment of turn-over tax under section 80D or not, as the aforementioned clauses provide exemption from tax in respect of profits and gains and not losses. The matter was, accordingly, referred to the Law Division for clarification.
The Law Division has clarified that the clauses (______ ) to (____ ) exempt only 'profits and gains' from tax and losses are not covered thereunder.
I am, therefore, directed to state that the assessee, who have declared 'losses' are not exempt from tax under section 80D of the Income Tax Ordinance, 1979, in the year in which the 'losses' are declared. Tax under section 80D is therefore, payable in respect of such. However, assessment in respect of such years have to be made to compute income/loss under the normal Law. Action may be taken immediately to finalize the claims of refunds in such cases. A list of such cases may be sent to the Board by 15-3-2000.
Please acknowledge receipt of this letter.
No. 3916, Dated:____ 03.2000 (Sd.)
Forwarded to all the in the Region (Sd.)
Forwarded to all the________ in the Region. With the request that compliance of above Instructions may please be made by 14-3-2000.
The validity of above circular has been challenged by the petitioners filing these petitions.
3. Learned counsel appearing on behalf of the petitioners have firstly argued that the Central Board of Revenue had no jurisdiction to issue circular of the nature reproduced above which tantamount to interfering in the judicial determination of the cases by the adjudicating officers. The other argument which has been vehemently put forward by the petitioners' learned counsel is that the view taken by the Central Board of Revenue that the exemption granted by clause (118) is not applicable to cases where loss has occurred was based on misinterpretation of the relevant provision and a vain attempt on the part of the Central Board of Revenue to defeat the judgment of the Supreme Court of Pakistan.
4. Respondent's learned counsel has, however, defended these petitions by arguing that clause
(118) of Second Schedule under which the petitioners were claiming exemption only exempts "profits and gains" and not losses from payment of turn-over tax.
5. Before proceeding any further it would be advantageous to reproduce clause (118C) of the Second Schedule of the Income Tax Ordinance, 1979 and Section 80D of the same Ordinance which are as follows:- Clause (118-0 "(118-C).-(1) Profits and gains derived by an assessee from an industrial undertaking set up between the first day of December, 1990, and the thirtieth day of June, 1995, both days inclusive, for a period of eight years beginning with the month in which the undertaking is set Up commercial production is commenced, whichever is the later."
Section 80D "80-D Minimum tax on income of certain persons.- Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable or paid by a company or registered firm, an individual, an association of persons, an unregistered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the Self-Assessment Scheme under subsection (1) of section 59 or a Hindu undivided family which, not being a company, does not quality for assessm ent under the Self-Assessment Scheme under subsection (1) of section 50 resident in Pakistan or the tax payable or paid is less than one-half per cent, of the amount representing its turn-over from all sources, the aggregate of the declared turn-over from all sources, the aggregate of the declared turn-over shall be deemed to be the income of the said company or a registered firm and tax thereon shall be charged in the manner specified in subsection (2).
Explanation: .................
(2) .............................
6. In Elahi Cotton Mills' case (supra) Supreme Court of Pakistan has held that as the Economic Reforms Act XII of 1992 was subsequent in time it shall override section 80D of the Income Tax Ordinance which was enacted through Finance Act, 1991. It was further held that assessee who fulfills the condition referred to Schedule to section 6 of Economic Reforms Act of 1992 was entitled to the protection. One of the notifications which was protected by the aforesaid Act was SRO No. 1283(I)/1990, dated 13-12-1990 which granted the exemption from payment of tax subject to the conditions mentioned therein. This notification was held to have an overriding effect over section 80D of the Income Tax Ordinance under which a minimum tax was levied. It is thus evident that the income which accrues to a party during the period mentioned in the Notifications is exempt from payment of turnover tax.
7. The stand taken by the respondents that aforesaid notification and clause (118-C) of the Second Schedule to Income Tax Ordinance, 1979 would not apply in a case where a person suffered loss is specious. Once it is conceded that the income arising from an undertaking set up during a particular period is exempt from turn-over tax the assessee cannot be brought into the taxation net on the pretext that clause (118) uses the words "profit and gains". The definition of income given in section 2(24) of the Income Tax Ordinance negates this stand of the respondents. Furthermore, it is pertinent to point out that the Legislature could have used the words "income and gains" while granting exemptions as it would be ridiculous to say that losses incurred by a person are exempt from payment of tax. It would be highly anomalous to hold that while those who have earned profit should not pay any tax but those who have suffered losses should pay the tax. This certainly cannot be the legislative intent or the effect of the law declared by the Supreme Court of Pakistan.
8. The other contention of the learned counsel is equally well-founded. Although under section 3-A of the Income Tax Ordinance, 1979 the Central Board of Revenue has the power to administer the law but it certainly has no jurisdiction, power or authority to issue a circular in respect of a contentious issue . Which would tantamount to whittling down the discretion vesting in the adjudicating officers and authorities under the Income Tax Ordinance. This question was examined by the Supreme Court of Pakistan in the case of Messrs Central Insurance Co. v. The Central Board of Revenue, Islamabad and others (1993 SGMR 1232) in which it was ruled as under:-- "Though the Central Board of Revenue has administrative control over the functionaries discharging their function under the Ordinance, but it does not figure in the hierarchy of the forums provided for adjudication of assessee's liability as to the tax/ Any interpretation placed by the Central Board of Revenue, on a statutory provision cannot be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or quasi-judicially. The Central Board of Revenue cannot issue any administrative direction of the nature which may interfere with the judicial or quasi-judicial functions entrusted to the various functionaries under a statute. The instructions and directions of the Central Board of Revenue are binding on the functionaries discharging their functions under the Ordinance in view of section 8 so long as they are confined to the administrative matters. The interpretation of any provision of the Ordinance can be rendered judicially by the hierarchy of the forums provided for under the above provisions of the Ordinance, namely, the Income-tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High Court and the Supreme Court and not by the Central Board of Revenue. In this view of the matter, the interpretation placed by the Central Board of Revenue on the relevant provisions of the Ordinance in the Circular, can be treated as administrative interpretation and not judicial interpretation."
This judgment was cited with approval in the subsequent case of the Central Board of Revenue, Islamabad and others v. Sheikh Sining Mills Limited, Lahore (1999 SGMR 1442) in which it was observed:--- "It seems to be well-settled proposition of law that the Central Board of Revenue, or for that matter even the Federal Government, cannot control or curtail judicial adjudication power vested in the forums provided under the relevant law by giving a particular interpretation to a particular provision of the relevant law or by issuing Notification/S.R.O. For that purpose."
9. It is evident from the above that the aforesaid circular has interpreted clause (118) of Second Schedule read with section 80D of the Income Tax Ordinance, 1979 as also the judgment of the Supreme Court and has taken the view that those concerns which have suffered losses during the assessm ent year were not entitled to exemption from payment of turn-over tax. By issuing such a circular the power of adjudicating officer to decide as to whether or not the exemption claimed by the petitioner was valid has been completely taken away and as such this circular is void and of no legal effect.
In view of what has been stated above these petitions are allowed with no order as to costs.