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Income‑tax Reference No. 41 of 1973, decided on 22nd December, 1983.

‑‑ Ss. 17, 15‑AA, 15‑H, 16 & 2(5)‑Finance Act (XVI of 1969), S. 10, Sched. IV, Parts I & II, paras. A & G, Explanations‑‑Non‑resident assessee‑Taxable income‑Total income computation‑Rebate in respect of investment by non‑resident assessee under Ss. 15‑AA & 15‑H, Income‑tax Act, 1922‑Classification of non‑resident assessee and different treatment for determination of tax payable by such persons under S. 17, Income‑tax Act, 1922, discussed‑Scheme, scope and application of S. 10, Finance Act, 1969, detailed exhaustively Taxable income in case of non‑resident as covered by S. 17(I)(a), Income‑tax Act, 1922, would be his total income without deducting allowance‑Provisions of S. 10, Sched. IV, Parts I & II, para. A: Explanation, Finance Act, 1969 held a clear departure from definition of total income as provided by S. 2(15), Income‑tax Act, 1922 Apparent conflict in Explanations to Part A and Part B of Sched. IV to S. 10, Finance Act, 1969, present‑Latter part viz. Part B to prevail‑Non‑resident assessee was covered by para. B to Sched. IV. S. 10, Finance Act, and, therefore, entitled to rebate in respect of investment made under Ss. 15‑AA & 15‑H, Income‑tax Act, 1922.

(1967) 16 Taxation 37; 1979 P T D 484 ref.

‑‑ Conflict in various parts of statute to be avoided‑‑Provisions of Statute in case of conflict be given harmonious construction and‑where conflict was obvious and could not be reconciled latter provision to prevail over the former.

Maxwell on Interpretation of Statute, 12th Edn., p. 187 fob.

‑‑ S. 17‑Finance Act (XVI of 1969), S. 10, Sched. IV, Parts I & II, paras. A 8c B, Explanations‑Categories of non‑resident assessee under S. 17, Income‑tax Act, 1922, stated‑Assessee a non‑resident and tax was payable on his total income on maximum rate‑Application of S. 10, Sched. IV, Parts I & II, Finance Act, 1969, to such assessee discussed‑Assessee being not covered by any other category specified by S. 17(1)(a), held, was covered by para. B, Parts I & II to Sched. IV of S. 10, Finance Act, 1969, and therefore, entitled to rebate in respect of investment made under Ss. 15‑AA & i5‑H, Income‑tax Act, 1922.

1979 P T D 484 fob.

Waheed Farooqui for Applicant.

Iqbal Nasim Pasha for Respondent.

Date of hearing: 31st October, 1.983.

.‑This judgment will dispose of I. T. Cs. 41/73, 42/73, 119/73 and 120/73. In all these matters the department has filed application under section 66(1) of the Income‑tax Act. The respondents in each one of these matters are different assessees, but the question of law involved in all the cases is same in I. T. Cs. Nos. 41/73 and 42/73 the following question has been referred:‑

Whether on the facts and in the circumstances of the case the Income tax Appellate Tribunal was right in holding that the respondent, who its a non‑resident, was entitled to rebate in respect of the investment made under section 15‑AA of the Income‑tax Act amount ing to its 25,000

The following question has been referred in I. T. Cs. Nos. 119/73 and 120/73.

Whether on the facts and in the circumstances of the case the Income‑tax Appellate Tribunal was right in holding that the respondent, who is a non‑resident, was entitled to rebate in respect of investment allowance and personal allowance under sections 15‑AA and 15‑H

The respondent is a non‑resident. During assessment year 1970‑71 he claimed rebate in respect of investment made under section 15‑AA amounting to Rs. 25,000. The Income‑tax Officer disallowed this claim on the ground that the respondent is a non‑resident and as provided by IV Schedule of the Finance Ordinance, 1969 the term "taxable income" means total income' of the assessee under clause (al of subsection (1) of section 17 of the Income‑tax Act, 1922. The respondent filed an appeal before the Tribunal which was allowed. The learned Tribunal relying on its judgment reported in (1967) 16 Taxation 37 held that there was no conflict so far computation of the total income was concerned, in respect of residential status of a tax‑payer ' and there was no distinction in respect of exemption between the resident and a non‑resident'. The rebate as claimed by the respondent was allowed under section 15‑AA.

2. There is no dispute about the status of the respondent. Only point at issue is whether in view of section 10 of the Finance Ordinance, 1969 (Ordinance XXI of 1969) the respondent is entitled to claim rebate on investment under sections 15‑AA and 15‑H. Mr. Wahid Farooqi the learned counsel for the Department has contended that the Tribunal has followed its judgment which related to a period prior to promulgation of Ordinance XXI of 1969 and after this Ordinance the position has com pletely changed.

3. Before dealing with the respective contentions of the parties it would be proper to first reproduce section 17 of the Income‑tax Act under which a non‑resident is charged to tax. Relevant portion of section 17 is reproduced as follows:‑

"17.‑(1) Where a person, not being a company, is not resident in (Pakistan), the tax, including super‑tax payable by him or on his behalf on his total income shall be amount equal to‑

(a) Income‑tax which would be payable on his total income at the maximum rate (or the Income‑tax which would be payable on his total income if it were the total income of the person resident in) (Pakistan), whichever is greater plus

(b) the super‑tax which would be payable on his total income if it were the total income of the person resident in (Pakistan):

Provided that any such person may, on the first occasion subsequent to that thirty‑first day of March, 1965; on which he is assessable for any year by notice in writing given to the Income‑tax Officer before the thirtieth day of September, in the year of assessment declare (such declaration being final and being applicable to all assessments thereafter) that the tax, payable by him or on his behalf on his total income shall be determined with reference to his total world income, and thereupon such tax shall be an amount bearing to the total amount of tax, which would have been payable on his total world income, had it been his total income the same proportion as his total income bears to his total world income;

Provided further that for the year of assessment ending on the thirty first day of March,, 1957, such notice may be given at any time before the first day of January, 1957:"

The ambit of taxation on residents and non‑residents has been laid down by section 4. Section 17 classifies non‑residents in three categories and prescribes different treatment for determination of tax payable by such persons:

(i) Non‑resident charged to Income‑tax on his total income an amount equal to income‑tax which would be payable on his total income at the maximum rate.

(ii) Non‑resident charged to Income‑tax on his total income equal to the Income‑tax which would be payable on his total income if it were the total income of the person resident in Pakistan whichever is greater.

(iii) Non‑resident who makes a declaration within a specified time for determination of tax with reference to his total world income. In such a cams none of the above two Formulas wood be applied for determining the rate of tax and the tax shall be determined with reference to his total world income in the manner prescribed by the provisions to section 17(1)(a) of the Income‑tax Act. If, a non resident does not make a declaration, then he will be taxed at the, maximum rate or equal to the tax payable on his total income by as resident in Pakistan, whichever, is greater.

We now revert to section 10 of the Finance Ordinance, 1969 and repro duce its relevant provision as follows:‑‑

"10. Income‑tax and super‑tax.‑(1) Subject to provisions of 6ub tions (2), (3), (4) and (5) in making any assessment for the year beginning on the first day of July, 1970‑‑

(a) Income‑tax shall be charged at the rates specified in Part I of the Fourth Schedule, and

(b) the rates of super‑tax shall, for the purpose of section 55 of the Income‑tax Act, 1922 (XI of 1922), be those specified in Part II of the Fourth Schedule.

(5) In cases to which section 17 of the Income‑tax Act, 1922 (XI of 1922), applies, the tax chargeable shall be determined as provided in that section, but with reference to the rates imposed by subsec tion (1), and in accordance, where applicable with the provisions of subsection (2).

(6) . . . . . . . . . . . . . . . . . . . . .

(7) For the purpose of this section and of the rates of tax imposed thereby, the expression of Income‑tax or super tax, as the case may be, in Act, 1922 (XI of 1922).

The Fourth Schedule

See section 10

Part I

A. In the case of every individual, Hindu undivided family un registered firm, an association of person and every artificial judicial person referred to in clause (9) of section 2 of the Income-tax Act, 1922 (XI of 1922), not being a case to which paragraph B of this part applies,

Provided that‑

(i) no Income‑tax shall be payable on a total income which before the deduction of an allowance of Rs. 2,000 (hereinafter referred to as personal allowance) and the sums, if any, exempt under the first, third and fourth provisos to subsection (1) of section 7, section 15, section 15‑A, section 15‑AA, section 15‑G, section 15‑CC, section 15‑D, section 15‑E, section 15‑F and section 58‑F of the Income‑tax Act, 1.922 (XI of 1922), does not exceed Rs. 6,000; and

(ii) the Income‑tax payable shall in no case exceed (a) the amount by which the total income exceeds Rs. 6,000, or (b) the amount re presenting seventy per cent of the total income whichever amount is the less, and, where such income includes any income from a share of the income, profits and gains of a firm to which paragraph C of Part II applies, such portion of the super‑tax payable under the said paragraph as bears to the total amount of such super‑tax the same proportion as his share of income, profits and gains of the firm bears to the total income of the firm shall be added to the income‑tax payable by such partner under this ‑para graph and, if the sum so arrived at exceed seventy per cent of the total income of such partner (including his share of income, profits and gains of the firm), the amount of income‑tax payable by him under this paragraph shall be reduced by the amount of such excess.

‑The expression 'taxable income', as used in this para‑graph, means

(a) in the case of an assessee to which subsection (3) of section 10 or clause (a) of subsection (1) of section 17 of the Income‑tax Act, 1922 (XI of 1922), applies, the total income;

(b) in any other case, the total income of an assessee as diminished by (i) the personal allowance of two thousand rupees, and (ii) the allowance admissible under the first, third and fourth provisos to subsection (1) of section 7, section 15, section 15‑A, section 15‑AA, section 15‑C, section 15‑CC, section 15‑D, section 15‑E. section 15‑F and section 58‑F of the Income‑tax Act, 1922 (XI of 1922).

(B) In the case of every company and local authority and in every case in which, under the provisions of Income‑tax Act, 1922 (XI of 1922) income‑tax is to be charged at the maximum rate‑

Rate

(1) On the part of the total income consisting of the amount, Nil

if any, to which sub‑paragraphs (2), (3) (4) of ‑ para -

graph A of Part II apply, and in the case of Banking

and Insurance Companies to which sub‑paragraph (4) of

paragraph A of Part II does not apply.

(2) On the balance of the total income ... 30 per cent.

Provided that where a company distributes of such

dividend out of its income, profits and income.

of one Anna in gains in respect of which it has obtained a rebate the rupee under the proviso to paragraph B of Part I of the Fourth Schedule to the Finance Act, 1958 (XXII of 1958), the Third Schedule to the Finance Act, 1957 (I of 1957), the Third Schedule to the Finance (1955‑56) Act, 1956 (XXX of 1956) an additional income‑tax at the rate of 625 per cent shall be levied on the amount of such dividend and such amount shall be deemed for the purposes of this proviso to be a part of the total income the company of the year in which such distribution is made."

Section 10 as reproduced above prescribes rates of income‑tax in respect of individual, Companies, resident, and non‑resident. The rates are specified in Part I of the IVth Schedule. For the purpose of present controversy section 10(5) of the Ordinance is the relevant provision which provides that in cases to which section 17 applies the tax shall be determined as provided in that section but at the rate prescribed by subsections (1) and (2)of section 10 of the Ordinance. By section 10(5) of the Ordinance the classification in respect of non‑residents as provided by section 17 of the Income‑tax Act has been not disturbed. Only for the purposes of rate's of tax reference has been made to subsections (I) and (2) of section 10. Therefore, again reference has to be made to subsection (l) of section 1 for the purposes of determining the rate of tax. As subsection (2) of section 10 is not applicable to the present controversy we will restrict ourselves only to subsection (1). The rates provided under section 10(1)‑are specified in Part I of the Fourth Schedule of the Ordinance. The rates of super‑tax are specified in Part II of the same Schedule. The IVth Schedule is divided in two parts. Part I is entitled Rates of Income‑tax' and Part II is entitled "Rates of Super‑tax". Part I relating to income‑tax is divides in paragraphs 'A' and 'B'.

The first point to be noted is that Part A is not applicable to ca covered by Part 'B'. The first proviso to Part A provides that income‑to shall be charged at the specified rate but no income‑tax shall be payable on a total income which before the deduction of personal allowance an other exemptions allowed under the Act does not exceed Rs. 6,000. Thu total income amounting to Rs. 6,000 before deducting personal allowance and exemptions will not be charged to tax. The second proviso also places certain limits in calculating the tax. Therefore, while calculating tax according to the rate specified in para. A of Part I the limitations placed by the proviso have to be applied. For purposes of Part A' the expres sion "taxable income" has been defined. It provides that in case o assessee covered by section 10(3) or section 17 (1) (a) of the Income to Act the "taxable income" will mean total income and in any other case the total income after deducting the allowances specified .in Explanation (b). According to the Explanation the assessee to which section 10(3) or 17(l)(a) of the Income‑tax Act applies the allowance will not be deducted from the total income. In such cases total income' will include allowances an exemptions which an assessee is otherwise entitled to deduct before it is charged to tax. A reading of this Explanation makes it clear that the taxable income' as used in Part A (where the rates have been specified) in the case of a non‑resident as covered by section 17(1)(a) will be hi total income without deducting the allowances. In fact the word 'to income' has been defined by section 2(15) of the Income‑tax Act a follows: ‑

"Total income means total amount of income, profits and gains referred to in the manner laid down in this Act."

The method of computation has been given in section 16 which provide that the total income is to be calculated after taking into consideration the exemption and the exclusion provided by various provisions of the Income‑tax Act. This Explanation in Part A, therefore, makes a Ilea departure from the definition of the total income as provided by section 2(15) of the Income‑tax Act. This conclusion finds support row, the, fact that Explanation (b) provides that in other cases 'taxable income' will mean total income as diminished by the allowances mentioned therein. Both the Explanations have to be read together and the only logical meaning will be as stated above.

Having explained the scheme of paragraph (A) we now revert to para graph 'B'. It provides a different rate of income‑tax in the case of company, local authority and in every case in which under the provision of Income‑to Act, income tax is charged at the maximum rate. Paragraph 'B', therefore inter alia covers a can, where an assessee is charged under the Income‑to Act at the maximum rate. Mr. I. N. Pasha, the learned counsel for the respondent has contended that since the respondent is covered by Paragraph 'B' he cannot be governed by the rate prescribed by paragraph 'A' which clearly excludes persons covered by Paragraph 'B'. On the other hand Mr. Waheed Farooqi, has contended that as Explanation (a) provides that in the case of asses covered by section 17(1)(a) the taxable, income will mesa total income without giving benefits of allowance, by implication Part 'A' will apply to the respondent. On close scrutiny of Paragraphs 'A' &'B' it is obvious that by virtue of Explanation (a) where reference bam made to section 17 (1) (a) the non‑residents are covered provided the do not fall in Part '13'. It is not disputed that the respondent is liable to charged at the maximum rate under section 17 (1) (a). Now, therefore question arises whether Part B' applies to respondent. There seems to be an apparent conflict in the Explanation of Part A and Part B. It is well settled rule of interpretation of statute that firstly, conflict in the various parts of the statute should be avoided; secondly, all the provisions of the statute should be given harmonious construction and thirdly, if the conflict between the provisions is obvious and cannot be reconciled, the later provision shall prevail over the former provision.

In Maxwell's on the "Interpretation of Statutes", 12th Edition at page 187 following observation has been made:‑

"If two sections of the same statute 'are repugnant, the known rule is that the last must prevail'. But, on the general principle that an author roust be supposed not to have intended to contradict himself, the Court will endeavour to construe the language of the legislature, in such a way as to avoid having to apply the rule, leges posteriores priores contrarieas abrogant.

One way in which repugnancy can be avoided is by regarding two apparently conflicting provisions as dealing with distinct matters or situations."

Crawford observed that: ‑

The Court should seem to avoid any conflict in the provisions of the statute by endeavouring to harmonize and reconcile every part so that each shall be effective. It is not easy to draft a statute, or any other writing for that matter; which may not in some contain conflict ing provisions. But what appears to the reader to be a conflict may not have seemed so to the drafter. Undoubtedly each provision was inserted for a definite reason. Often by considering the enactment in its entirety, what appears to be on its face a conflict may be cleared up and the provisions reconciled.

Consequently, that construction which will leave every word operative will be favoured over one which leaves some word or provision mean ingless because of inconsistency."

In the present case we have observed earlier that section 17 covers three categories of non‑resident assessees. One of the categories is of that assessee who not being a company has to pay tax including super‑tax equal to income‑tax which would be payable on his total income at the maximum rate with the exception that if the tax calculated at the maximum rate is less than the income‑tax which would be payable on his total income, if it' were the total income of a resident in Pakistan, then the tax which is greater shall be payable. Such assessee will fall in the second category. The third category relates to person other that company who maker declaration for assessment with reference to world income. Since Para graph 'B' specifically covers cases where the income‑tax is charged at the maximum rate, it will amount to exclude such cases from applicability of Paragraph 'A'. In all other cases where maximum rate is not chargeable but fall under section 17(1) (a) will be covered by paragraph 'A'. This is the only harmonious construction which can be placed to the conflicting provisions of sections 10 (1), 10 (5) and Part A and Part B of the Fourth Schedule to Finance Ordinance 1969. Both the parties have stated that the respondent is a non‑resident and tax is payable on his total income at the maximum rate. It is not the case of the applicant that the respondent is covered by any other provision or any other category specified by sec tion 7 (1) (a). We are, therefore, of the view that as the respondent is covered by Paragraph B in view of 1979 P T D 484 he is entitled to rebate in respect of investment made under sections 15-AA and 15-H.

We, therefore, answer the aforesaid questions in the affirmative.

M. Z. M. Reference answered.

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