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 8-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 divided. For the assessm ent years 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 section 80-B of the Income Tax Ordinance, 1979 read with Part I_ 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 out to the assessee. Earlier she opined that 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), section 22 (income from business or profession), section 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. He 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 subsection (2-A) of section 50 of the Income Tax Ordinance, 1979.
5. Learned 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 or thi 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 obsente clause. Subsection (1) of, section 80-B provides that where any amount referred to in subsection (2) is received by or accrues or arises or is deejned to accrue or arise to an individual and certain other categories of persons or assessees, the whole of such amount shall be deemed to be income of such person and tax thereon shall be charged at the rate of 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) of section 80-B of the Ordinance, 1979. The controversy only arises when we proceed to subsection (2)(b) of section 80-B. This subsection provides that the amount referred to in subsection (1) shall be the interest or profit on which tax is deductible under subsection (2-A) of section 50. The two situations contemplated by subsection (1) and then subsection (2) of section 80-B are, therefore, clear. Firstly that an amount (income) referred to in subsection (2) shall be charged to tax at a fiat rate. Secondly. "The amount referred to in subsection (1) shall be the following namely--- _ (a) dividend on which tax is deductible under subsection (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;
1. (c) interest or profit do which tax is deductible uder ubsection (7-D) of section 50; and
(d) prizes and winnings on which tax is deductible or collectible under subsection (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-clauses (a) to (d). It is so because of the use of words "shall be" and "namely" in the opening part of subsection (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 crystallizes 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-clauses 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 subsections (1) and (2) of section 80-B, it may again be noted is that certain kind of income accruing to certain kind of persons shall be taxed at a flat rate. Subsection
(2) identifies various categories of receipts, all with reference to various subsections 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 out 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 obstinate" which denoted the words used in old legal instruments intending to preclude, 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 provisions of statute. However, according to the Hon'ble Judges of the Supreme Court of India in re: Bharat Hari Sanghiana v. CWT 1995 PTD 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. That context and consistency in the case of the provision under discussion means a very strict and restricted reading. The clause being an exception to the general rules of framing of an assessment as contained in the Ordinance needed to be strictly construed. When the provisions of section 80-B are read with subsection (2-A) of section 50 it clearly comes out that only an amount fulfilling the aforesaid three requirements can possibly be treated at a fixed rate. If any one 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 provisions 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.
11. The provisions of section 80-B it will further be seen, are charging provisions as well. Like all such provisions, the charge made has to be in clear and unambiguous words. There is no room from 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. CIT, Karachi 1993 SCM R 274 = 1993 PTD 69 and Re: Messrs Hidina & 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 subsection (2-A) of section 50.
The reference to these provisions in clause (b) of subsection (2) of section 80-B has the effect of making them a part of the provision and to be read accordingly.
12. 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 (C.B.R.) 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 subsection (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 subsection (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 disentitled him for assessm ent as a normal assessee under section 30 of the Income Tax Ordinance.
13. 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.
14. Petition accepted. .