NASIM SIKANDAR, J.- This Constitutional petition calls for an interpretation of section 16(2)(c) of the Income Tax Ordinance, 1979 (for short, the Ordinance). The precise issue being if various sums received by the petitioners are "profits in lieu of salary" as defined in the above provisions of the Ordinance.
2. The petitioners were employed with various financial institutions and limited companies. Their employers, allegedly in order to reduce the inflated size of the Organizations offered them to leave service under certain terms and conditions which were shown as "Golden Handshake Scheme". In some cases the employees/petitioners were not given any substantial choice and therefore, their parting with the employers was more in nature of pre-mature retirement, It appears that different employees were offered different incentives to opt for early parting with the Organizations. These incentives which were normally based upon the years of service rendered by an employee are however, not required to be gone into in any detail.
3. After the petitioners/employees had for "Gulden Handshake Scheme" or were required to leave, their e employers by proceedings under section 50 of the Ordinance deducted tax at source from the payments so made. This was apparently done in view of Circular No. 15 of 1997, dated 16th November, 1997 issued by the C.B.R. Through that circular which was titled as "payments under Golden Handshake Scheme-tax treatment" the C.B.R, expressed the view that compensation in connection with termination of employment was taxable under the head salary under section 16(2)
(c) of the Income Tax Ordinance, 1979. Therefore, the Central Board of Revenue advised the Tax Collectors/Assessing Officers to proceed to tax the same as salary but after allowing the employees benefits of an earlier Circular No. 1 of 1965, dated 1st July, 1965. By way of that circular the terminated employees were granted concession of getting their compensations taxed as a separate block of income at three proceeding year's average tax rate.
4. The circular was challenged through a number of Constitutional petitions. About 150 of them were disposed of by a learned Single Bench of this Court on 16.4.1998 through common order recorded in Writ Petition No. 282/98 declaring the circular to be ultra vires of the powers of C.B.R, It was declared to be without lawful authority. However, the adjudicating officers were directed to decide independently of the circular as to whether the amounts received by the petitioners were tantamount to salaries. The amounts with-held by the Banks or disbursed to the Department under the impugned circular were also directed to be refunded to the petitioner.
5. That judgment was followed by other Benches sitting singly and a directions were made to the revenue. However, in all of them the issue if the amounts received by the petitioners were salaries and therefore taxable as income was (sic) to be decided by the assessing officers. On 13.12.1999 another single Bench of this Court at Rawalpindi Bench in Writ Petition No. 2086/99 however, went a step further. While allowing identical petitions it was declared that payments due to or received by the petitioners from their employers were not "compensation in lieu of salary" but a compensation "for loss of employment". These were therefore, held to be capital receipts which were not taxable as income.
6. The issue as to the taxability of these receipts was taken up by a Division Bench of this Court at the instance of the revenue in ICA No. 241 of 2000 wherein the aforesaid directions of learned Single Judge in Writ Petition No. 15296/98 were assailed. After hearing the parties the order of the learned Judge in Chamber was set aside. As to the impugned direction to take refund it was held that the amounts should be invested in some profit bearing scheme so as to be paid to either of the parties which finally succeeds in the matter. Earlier the learned counsel for the parties had agreed that the declaration made with regard to non-taxability of Golden Handshake amounts should be set aside and the matter be left open for adjudication by assessing officers independent of the said circular.
7. Learned counsel for the revenue Mr.. Muhammad Ilyas Khan, Advocate at the outset has pressed for disposal of these Constitutional petitions in a similar manner. He prays that the matter of taxability of income should be left open to be decided by the Assessing Officer.
8. Learned counsel for the respondents, however, state that the matter is likely to come back to this Court again and the prevailing confusion and uncertainty will only compound. Learned counsel for the respondents claim and we will partly agree with them that in the given situation, the judgment of the revenue officer can safely be guessed. Also in view of the aforesaid single Bench judgment of this Court dated 3.12.1999 in Writ Petition No. 2086/99 we are of the view that the ambiguity as to the taxability of such receipts needs to be resolved. Therefore, we proceed to do so.
9. The word "Income" it is settled beyond any doubt is not confined to any specific kind of profits or gains, In view of their Lordships of the Privy Council in re: Maharajkumar Gopal Saram Narain Singh v. Commissioner of Income Tax Bihar and Orissa (1935 ITR 237) anything which could properly be described as income is taxable under the Act unless expressly exempted. Since the judgment of the Privy Council in re: Commissioner of Income Tax Bengal v. Shaw Wallace and Company (AIR 1932 PC 138) there is a great consensus that it is not possible to define the word "income" as a general phrase. According to the Hon'ble Supreme Court of Pakistan in re: Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income Tax, Rawalpindi (1981) 43 Tax 18), the question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. A Division Bench of the Karachi High Court in re: Karachi Gymkhana Glub Road, Karachi v. Commissioner of Income Tax (1986) 53 Tax-1), referred Oxford Dictionary Vol. V page 162 to show that income means "a thing that comes in". With the passage of time the earlier concept that income generally connotes a periodical return coming in with some sort of regularity and from a definite source has undergone substantial change. Whenever an attempt has been made to define income it has only been done in the context of a particular statute. The Income Tax is a charge on a person in relation to his income, natural or artificial, which is expressly taxable under the provisions of a charging statute. The burden of .Proof of the fact that any receipt by a person amounts to income is on the revenue and once it is so established then the burden changes hand and falls upon the assessee to prove that it is not so or that it stands exempted under any provision of the law.
10. According to the learned counsel for the petitioners the payments received by most of them are ex-gratia grants and, therefore, are not salaries wherefrom any deduction under section 50(1) of the Income Tax Ordinance, 1979 could possibly be made. Also that these remunerations/payments were compensation for loss of service paid to the parting employees for their rehabilitation and therefore, was not income. All the petitioners have supported their contentions by the aforesaid judgment of a single Bench of this Court in re: Nasir Mehmoodi Dar, etc. v. Federation of Pakistan (1998 PTD 3497).
11. Mr. Imtiaz Rashid Siddiqi, Advocate, learned counsel for the petitioners in support of his submissions that the amounts received by the petitioners were not taxable, has relied upon judgment of the Hon'ble Supreme Court of India in re\ Intercommon. v. E.D. Sheppard, Bombay (AIR 1963 SC 1343) decided on 12.12.1962.
12. Learned counsel for the revenue on the other hand relies upon a recent judgment of the Supreme Court of Azad Jammu and Kashmir in re: Commr, of income Tax v. Altaf Ahmed Mir (2001)
84 Tax 43) + (PCTLR 2001 SC (AJ&K) 1005). In that case decided on 12.3.2001 the petitioners before their Lordships were also those who were paid amounts as compensation for pre-mature retirement under Golden Handshake Schemes.
13. After hearing the learned counsel for the parties, we entertain no doubt that the various sums received by the petitioners are squarely hit by the mischief of the aforesaid provisions of section 16(2)(c) of the Ordinance which reads as under:- 16(2)(c)
"Profits in lieu of salary" includes:-
(i) the amount of any compensation due to, or received by, an assessee from his employer at, or in connection with, the termination of or the modification of any terms or conditions relating to, his employment."
14. Section 16 gives salary as one of the various heads under which an income can possibly be taxed under the Ordinance. Sub-section (2) of section 16 defines "salary" which inter alia includes "profits in lieu of or in addition to salary or wages." Then sub-clause (c) of sub-section (2) defines "profits in lieu of salary" and still leaves a room for a wider interpretation by using the word "include".
A glance at the definition makes it clear that every amount received by an employee from his employer in connection with the termination or modification of any terms and conditions relating to his employment will be "profits in lieu of salary". Their Lordships of the Supreme Court Azad Jammu and Kashmir in re: C.I.T, v. Altaf Ahmed Mir (Supra) rejected similar arguments as made before us that receipt of lump sum amounts when the employment also stood terminated could not be a salary. Their Lordships pointed out that legislature by fiction of law could assume one thing to be another for a specific purpose. Generally a salary means a sum of money which a person receives after having been in service of an employer for certain length of time divided into hours, days, weeks or months. The definition of salary as given in section 16 includes "profits in lieu of salary" as well. These profits are the amounts of compensation due, or received by an employee which have a nexus with the termination of that employment or modification of any terms and conditions relating thereto. The definition of the words "profits in lieu of" is so all embossing that one cannot escape the conclusion that the amounts received by the petitioners fell right in the centre of the net spread by the said definition clause. Also we are of the view that there is no difference between a compensation in lieu of salary or a compensation due to loss of employment. The contention put forth at the bar that a compensation given as loss of employment should be deemed to be a capital receipt under the law is also not readily acceptable, In such situation, a question will arise if right of a person under terms of agreement of employment to serve for a particular period amounts to a capital asset and its liquidation before the appointed time to be a capital receipt. A compensation, as far the definition goes is certainly a "profit in lieu of salary" if received in connection with the termination or modification of the contract of employment, In this context whether the employee had the option to accept or reject a scheme or was obliged to part with the employment does not matter at all. The termination or modification of an employment covers the cases of optional and mandatory schemes which the employees availed or were required to avail. A choice or option in the given situation did not matter at all as far the payment by the employer or receipt by the employee of sums in question was concerned.
15. The argument that the payment for loss of employment cannot be taken as salary is of no avail at all. Lt is repeated that the law has created a legal fiction that amounts received as compensation, on termination of employment or modification of a contract of employment will amount to salary and to that proposition the clear words of the statute bear witness, It is equally immaterial of subsection (2) of section 16 of the Ordinance first created a legal fiction of profits in lieu of salary and then proceeded to extend the same further. We are not aware of any rule of interpretation which restricts the power of legislature to create legal fictions one a^ter the other or to presume the existence of another fact when a fact presumed has come into existence. Learned counsel for the revenue is correct in pointing out the extreme situation as contemplated in the definition clause that the provision as framed will bring into tax net any amount of compensation which is only due to an employee and has not even been from the employer.
16. Some of the petitioners have claimed that these amounts are not taxable under clause 17 of the Second Schedule to the Income Tax Ordinance, 1979. All the petitioners before us having retired before attaining the age of 60 years cannot avail of the benefits of the said clause. Even otherwise the exemption contemplated in the clause is applicable only to pensions which the employees may receive after superannuation and not a lump sum payment as alleged by the petitioners.
17. Coming to the judgment relied upon by Mr. Imtiaz Rashid Siddiqui, Advocate, in re: I.T.
Commissioner v. E.D. Sheppard (Supra) we find the same to be clearly distinguishable, In the case the learned Full Bench of the Supreme Court of India was interpreting explanation-2 to section 7(1) of the Income Tax Act, 1922 before the main provision was re-cast by Finance Act, 1955. The explanation-2 to section 7 (1) before its re-casting read as under:- "Explanation 2. A payment due to or received by an assessee from an employer or former employer or from a provident or other fund, is to the extent to which it does not consist of contributions by the assessee or interest on such contributions a profit received in lieu of salary for the purpose of this sub-section unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services." (emphasis supplied).
18. A reading of the above explanation leads one to the simple conclusion that at the relevant time profits received in lieu of salary for the purpose of sub-section (1) of section 7 were taxable while the payment was solely as compensation for loss of employment were not liable to tax. Lt was in the context that their Lordships found for the assessee. The exception created in the latter part of the explanation "unless payment is made solely as compensation for loss of employment and not by way of remuneration of past service clearly took out all sums paid and received as compensation for loss of employment from the ambit of definition of salary. 0n the enforcement of the Ordinance compensation for loss of office were expressly included in salary through definition clause 16(2)(c). Even on the opening page of the said report it was clearly stated by majority Judges that prior to the amendment introduced by Finance Act, 1955, explanation-2 to section 7(1) made it clear that the payment which was made solely as compensation for loss of employment was not assessable while the payment which was made as remuneration for past service was taxable as income.
19. On the other hand, according to section 16(2) "salary" includes profits in lieu of or in addition to salary and the profits in lieu of salary includes any amount of compensation, even due to or received by an assessee in connection with the termination or modification of any terms and conditions relating to his employment.
20. Therefore, we are of the considered view that payments received by the petitioners from their employers are covered by the definition of the word "salary" which is one of the heads given on section 15 under which such receipts are to be taxed, In the given situation, however, we are of the view that C.B.R. Circular No. 15 of 1997 dated 6.11.1997 whereby amounts in hands of an employee were directed to be assessed in the light of earlier Circular No. 1/65, dated July 1, 1965 was clearly beneficial. Accordingly all petitioners and those placed in similar situation will be entitled to the benefits of Circular No. 1 of 1965. The declaration made by this Court in various judgments against issuance of Circular No. 1 of 1997 operates only the extent of the advise given by the CBR to the assessing officers as to the taxability of the receipt. The later part of the circular extending concession of Circular No. 1/65 shall however remain intact and be available to all those who wish to avail it.
21. The following petitions shall, therefore, be rejected with the observations for extension of benefits of the said Circular No. 1 of 1965 when-ever requested by the assessee:-
(1) W.P. No. 1973/2001.
(2) W.P. No. 13908/2001.
(3) W.P. No. 13972/2001.
(4) W.P. No. 17396/2001.
(5) W.P. No. 17397/2001.
(6) W.P. No. 1739/2001.
(7) W.P. No. 11552/2001.
(8) W.P. No. 11553/2001.
(9) W.P. No. 14965/2001.
(10) W.P. No. 13863/2001.
(11) W.P. No. 25079/2001.
(12) W.P. No. 8826/2001.
(13) W.P. No. 11966/2001.
(14) W.P. No. 14549/2001.
(15) W.P. No. 13717/2001.
(16) W.P. No. 24448/2001.
(17) W.P. No. 1086/2001.
(18) W.P. No. 24282/2001.
(19) W.P. No. 16000/2001.
(20) W.P. No. 14379/2001.
(21) W.P. No. 19238/2001.
(22) W.P. No. 19844/2001.
(23) W.P. No. 23256/2001.
(24) W.P. No. 1985/2001.
(25) W.P. No. 7552/2001.
(26) W.P. No. 436/2001.
(27) W.P. No. 12979/2001.
(28) W.P. No. 12978/2001.
(29) W.P. No. 14847/2001.
(30) W.P. No. 14848/2001.
(31) W.P. No. 13878/2001.
(32) W.P. No. 13877/2001.
(33) W.P. No. 13879/2001.
(34) W.P. No. 14401/2001.
(35) W.P. No. 14402/2001.
(36) W.P. No. 13259/2001.
(37) W.P. No. 13261/2001.
(38) W.P. No. 13262/2001.
(39) W.P. No. 13263/2001.
(40) W.P. No. 13265/2001.
(41) W.P. No. 13611/2001.
(42) W.P. No. 13615/2001.
(43) W.P. No. 13616/2001.
(44) W.P. No. 14881/2001.
(45) W.P. No. 13612/2001.
(46) W.P. No. 13374/2001.
(47) W.P. No. 13494/2001.
(48) W.P. No. 14234/2001.
(49) W.P. No. 15806/2001.
(50) W.P. No. 17379/2001.