NASIM SIKANDAR, J. -- This Constitutional petition has been brought to assail an order of the learned Member (Judicial) Income Tax, Central Board of Revenue dated 31.3.1997 whereby she maintained treatment of interest income by the Assessing Officer with reference to the provisions of Section 80- B of the Income Tax Ordinance, 1979 (for short the Ordinance).
2. The assessee an individual, at the relevant time, derived income from salary and dividend. For the Assessm ent Year 1993-94 and 1994-95 besides income from salary he declared receipts of interest at Rs.25,51,994/- and Rs.41,40,593/- respectively. However, both sums were not offered for taxation on the ground that his interest expense was more than his receipt on that account, It was claimed that to earn that income the assessee had paid interest amounting to Rs.32,11,178/- and Rs.40,84,329/- to the banks from which the amounts were earlier borrowed for the purpose of advancing them to the company of which he was a director. The Assessing Officer, however, refused to consider the contention, In his view the aforesaid sums being .Interest income were chargeable to tax as a separate block of income at the flat rate of 10% as provided for in 80-B of the Income Tax Ordinance, 1979 read with Part-1 of the First Schedule thereof. The assessee failed before the Commissioner (Appeals). Thereafter, the assessee opted to file revision under Section 138 of the Income Tax Ordinance, 1979. That revision petition was disposed of by way of the impugned order whereby the learned Member maintained the treatment meted of to the assessee.
Earlier she opined the Section 80-B of the Income Tax Ordinance containing a non- obstante clause had precedence over the other provisions of the Ordinance such as Section 15 (heads of income), 22 (income from business or profession), 30 (income from other sources) and Section 31 (deductions) etc. According to the learned Member such like interest income was normally covered by the provisions of Section 30 as income from other sources and entitled to deductions under Section 31 but both provisions stood ousted by implication after introduction of Section 80-B by Finance Act, 1991 effective from the Assessment Year 1992-93. In her way of reading, the provisions of Section 80-B were clear as these expressly prohibited allowing of any expense against interest income covered by these provisions.
3. The findings so recorded according to the assessee, are illegal inasmuch as the revenue authorities acted illegally and the learned Member (Judicial) maintained their orders which were per se against the letter and spirit of law. All the three orders particularly the last one under Section 138 of the Income Tax Ordinance recorded on the revision petition of the present petitioner are described as illegal and non-existent in the eyes of law. In absence of any other remedy, this Constitutional petition has been filed to seek a declaration against the aforesaid three orders.
4. Heard the learned counsel for the petitioner. Fie submits that provisions of Section 80-D are not at all attracted in the case of the petitioner; that the company from which the interest was received was a private limited company and was not carrying on any banking business and therefore the interest received could not be said to have been covered by the provisions of Section 80-B read with Section (2-A) of Section 50 of the Income Tax Ordinance, 1979.
5. Learend counsel for the Revenue supports the three orders without disputing the facts as stated at the bar. Particularly, the claim that the assessee. Petitioner had actually paid interest to banks on money borrowed from them for the purpose of its onward lending to the company of which he was one of the directors.
6. Section 80-B provides for tax on income of certain persons from dividends and bank profit etc. It certainly contains a non-obstent clause. Sub-section (1) of Section 80-B provides that where any amount referred to in sub-section (2) is received by or accrues or arises or is deemed to accrue or arise to an individual and certain other categories of persons or assessee, the whole of such amount shall be deemed to be income of such person and tax thereon shall be charged at the rate specified in the first Schedule. There hardly appears any dispute between the revenue and the petitioner as an assessee as to the nature of income as well as the persons covered by subsection
(1) Section 80-B of the Ordinance, 1979. The controversy only arises when we proceed to sub- section (2)(b) of Section 80-B. This sub-section provides that the amount referred to in sub- section (1) shall be the interest or profit on which tax is deductible under sub-section (2-A) of Section 50. The two situations contemplated by sub-section (1) and then sub-section (2) of Section 80-B are therefore, clear. Firstly that an amount (income) referred to in sub-section (2) shall be charged to tax at a flat rate. Secondly, "the amount referred to in sub-section (1) shall be the following namely:-
(a) dividend on which tax is deductible under sub-section (6-A) of Section 50;
(b) interest or profit on which tax is deductible under subsection (2-A) of Section 50;
(bb) the amount received on encashment of bearer certificates on which tax is deductible under subsection (5B) of Section 50;
(c) interest or profit on which tax is deductible under subsection (7-D) is Section 50; and
(d) prizes and winnings on which tax is deductible or collectible under sub-section (7-C) of Section 50."
In other words the nature of the amount contemplated in sub-section (1) is restricted to the categories which are referred to in sub-clause (a) to (d); It is so because of the use of word "shall be" and "namely" in the opening part of sub-section (2). After stating of the first two, we are referred to the provisions of Section 50(2-A) to know the third and the' last situation which shapes the intention of the legislature and crystalizes the levy, It reads as Under- Section 50(2-A) "any person responsible for paying any sum by way of interest on an amount or deposit maintained with any banking company, or any company referred to in sub-clause 8(a) and (b) of clause (16) of Section 2, or any finance society shall deduct, at the time of credit of such interest or profit to the account of the recipient or at the time of payment thereof, whichever is earlier, tax at the rates specified in the First Schedule."
7. The accumulative effect of sub-section (1) and (2) of Section 80-B, it may again be noticed is that certain kind of income accruing to certain kind of persons shall be taxed at a flat rate. Sub- section (2) identifies various categories of receipts, all with reference to various sub-sections of Section 50 to identify the nature of receipt or the amount visualized in subsection (1) of Section 89- B. It says that the sum covered by the clause would be one which is (i) paid by way of interest, (ii) on an account or deposit and (iii) by any banking company (and since 1995 a financial institution as well). The time of accrual of the amount though not specified, it is nevertheless connected with the deduction at source of the fixed tax at specified rates, "at the time of credit of such interest or profit, to the account of recipient, or at the time of payment thereof, whichever is earlier "
8. In the case of the present assessee, it is only the receipt of interest which is answered of of the above three conditions. The amount was admittedly received as interest but it was neither on an account nor deposit nor it was received from a banking company. Even if the loan advanced by the assessee is taken to be an "account" or "deposit" with the borrower company, still the last condition of the accrual from a banking company or a financial institution is completely absent.
The revenue including the learned Member, C.B.R, obviously magnified the awe of non-obstante clause to hold that the petitioner assessee was not entitled to be assessed under the normal scheme of the Ordinance.
9. The word "notwithstanding" is equivalent of "non- obstante" which denoted the words used in advance, any interpretation contrary to certain declared objects or purposes. In common law system it also referred to the power of the Crown to dispense with the laws in any particular case.
These clauses were also used in old English Statutes and letters patent which contained authorization from the Crown to a person to do a thing which he was otherwise restrained from doing by an Act of the Parliament. A non-obstante clause, as necessarily Section 80-B is, certainly excludes the other provision of statute. However, according to the Hon'ble Judges of the Supreme Court of India in Re: Bharat Hari Sanghiana v. CWT (1995 P.T.D. 997) = (207 ITR 1) its purport and scope can be ascertained only by reading it in the context and consistent with the scheme of the statute. The context and consistency in the case of the provisions under discussion means a very strict and restricted reading. The clause being an exception to the general rules of framing of an assessm ent as contained in the Ordinance needed to be strictly construed. When the provisions of Section 80-B are read with Section (2-A) of Section 50 it clearly comes of that only an amount fulfilling the aforesaid three requirements can possibly be treated at a fixed rate. If anyone or more of the requirements are lacking then the sum or the amount accrued even on account of interest must be treated in accordance with the general provision of the Ordinance which allowed the assessee to claim it as income from other sources assessable under Section 30 and therefore subject to the deductions given in the following Section 31 of the Ordinance.
10. The provisions of Section 80-B it will further be seen, are charging provision as well. Like all such provisions, the charge made has to be in clear and unambiguous words. There is no room for any intendment nor according to the established principle of interpretation of taxing statute, there is any equity or presumption as to a tax (See Mehran Associates Limited V. C.I.T., Karachi), (1992) 66 Tax 246 and Re: Messrs Hirjina and Co. (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax, Central, Karachi (1971 SCM R 128). The charge contemplated in Section 80-B is not on interest income but only on interest income which is received from a Banking Company or a Financial Institution and is, therefore, liable to deduction as contemplated in sub-section (2-A) of Section 50.
The reference to these provisions in clause (b) of sub-section (2) of Section 80-B has the effect of making them a part of the provision and to be read accordingly.
11. In the case of the assessee, in the first instance, I do not see any ambiguity as to the application of the provisions in the perspective of the facts in hand. However, if at all there was any ambiguity, it should have been resolved in favour of the assessee on the established principle of interpretation of taxing statute. The learned Member (CBR) agreed that ordinarily the interest paid by the assessee to the Bank would have been an admissible expense. However, she was clearly mistaken to agree with the Assessing Officer as well as the learned first appellate authority that the amount of interest received by the assessee was hit by mischief of Section 80-B. It is correct that any income/sum covered by Section 80-B is not entitled to any deduction. However, the issue of non- deductibility could arise only after the revenue had successfully brought home that the interest income earned by the assessee from a borrower private limited company was an amount contemplated in sub-section (2-A) of Section 50. The amount received by the assessee in this case was on account of its having made an advance to the Company of which he was a Director.
Earlier he had borrowed that amount from a banking company and therefore, the said provisions of sub-section (2-A) of section 50 were not at all attracted to his case. Accordingly, the non- obstante clause and the provisions of Section 80-B were not attracted to the kind of sums received by him nor these dis-entitled him for assessment as a normal assessee under Section 30 of the Income Tax Ordinance.
12. The Assessing Officer, C.I.T. Appeals as well as the learned Member (JudI.) accordingly acted illegally. All the three orders recorded by them, to that extent, are therefore, declared to be illegal, against law and without jurisdiction.
13. Petition accepted.