Find a Lawyer

Income-tax Case No.19 of 1978 decided on 5th November 1986.

----Ss.15-H, 2(15), 16(1) & Sched., Explanations (a) & (b) [as substituted by Finance Act of 1972 and Finance Act, (LI of 1973)]--Term "total income" - Meaning--Claim of assessee being a non-resident under S.15-H, whether allowable exactly as it was allowed in case of resident.

The term "total income" in its ordinary literary meaning would indicate that it covers income from every quarter without any deductions, but the term "total income" has been defined in the Income-tax Act and as such the said definition is to be followed and not the ordinary meaning of the term "total income".

According to section 2(15) of the Income-tax Act, 1922, total income means total income, profits and gains computed in the manner laid down in the Income-tax Act, 1922. The definition of "total income" did not end at "total amount of income, profits and gains" but it goes further and provides that "total income" is total amount of income computed in the manner laid down in the Act. Computation of total income under the Act is provided in section 16 of the Act and at the relevant time section 15-H was not referred to in that provision whereas other provisions of Income-tax Act relating to exemption were specifically referred to. Then in the Finance Act, 1976, section 16(1) was amended and one effect of such amendment was that section 15-H was specifically inserted in section 16(1). From this, it follows that with effect from enforcement of the Finance Act, 1976, for computation of the total income of an assessee, the amount exempted under section 15-H was also to be included and not excluded. It also follows that prior to the coming into force of the Finance Act, 1976, for purposes of computation of the total income of an assessee under section '16(1), the amount exempted under section 15-H was to be excluded. This is also apparent from the fact that in section 16(1) as it stood at the relevant time, other sections under which various exemptions were granted to the assessees, were specifically mentioned but section 15-H was significantly not mentioned.

In spite of the fact that in "Explanation (b)", section 15-H is specifically referred to, at the relevant time when section 15-H was not mentioned in section 16(1) of the Income tax Act, 1922, for computation of taxable income of a non-resident assessee, from the total income the amount exempted under section 15-H was to be excluded.

Shaikh Haider and K. Salahuddin for Appellant.

Shaikh Abdul Aziz for Respondents.

Date of hearing; 5th November, 1986.

.-- This judgment will dispose of I.T.C. Nos. 19 20, 21, 22 and 23/78 and I.T.R. No.7/80. In I.T.C. No.23/78, Mr. K. Salahuddin Advocate appears for the applicant/ Commissioner of Income-tax; in I.T.C No.19, 20, 21 & 22/78. Mr. Shaikh Haider Advocate appears for the applicant/ Commissioner of Income-tax; and in ITR No-7/80, Shaikh Haider appears holding brief for Mr. Waheed Farooqi Advocate for the, applicant/ Commissioner of Income-tax. There are different respondents in these cases but in all cases Mr. Shaikh Abdul Aziz Advocate appears for the respondents, who are all non-resident individuals. All cases relate to assessment year 1973-74. We have heard the learned counsel for the applicant and learned counsel for the respondents.

2. In all these cases, identical question which arises for our opinion is as follows:-

"Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that the claim of the assessee being a non-resident under section 15-H of the Income-tax Act (1922) was to be allowed exactly as it was allowable in the case of a resident "

Answer to this question depends on the meaning of the term "total income" employed in the relevant Schedule to the Income-tax Act 1922 substituted by the Finance Ordinance, 1972 and Finance Act, 1973. The "Explanation" given in the aforesaid schedule defines the expression "taxable income" as follows:-

"(a) In the case of assessee to whom or to which subsection (3) of section 3 or clause (a) 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 the allowance admissible under the first and third 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-F, section 15-H, section 15-F and section 58-W of the Income tax Act, 1922 (XI of 1922)."

Section 17 (1) of the Income-tax Act, 1922 relates to non-residents and all these cases under consideration are cases of non-resident individuals. According to the Income-tax Tribunal, for computation of the total income of a non-resident individual, amount exempted under section 15-H of the Income tax Act was to be excluded and after exclusion of such amount, the resultant figure would be the "total income". Both Mr. Shaikh Haider as well as Mr. K. Salahuddin, learned counsel appearing for the department, have, however, submitted that according to the "Explanation" given in the relevant Schedule to the Income-tax Act "taxable income" means the total income of the non-resident and from this total income no amount is to be excluded. To be precise, the contention is that the amount exempted under section 15-H of the Income-tax Act is also to be included in computing the total income. For this contention, it was submitted that in "Explanation (a)" the term "taxable income" is defined to mean total income and total income would include income from every source and no amount is to be deducted from such total income. The in support of this contention was that in "Explanation (b)", section 15-H is also referred to and this would indicate that for purpose of computation of the total income of a non-resident the amount exempted under section 15 H is also to be included.

3. Mr Shaikh Abdul Aziz, learned counsel for the respondents in all these cases, has argued that the term "total income" has been defined in the Act. He has referred to section 2 (15) of the Income-tax Act. 1922 which reads as follows:

"total income" means total amount of income, profits and gains referred to in subsection (1) of section 4, computed in the manner laid down in this Act; and 'total world income" includes all income, profits and gains wherever accruing or arising except income to which, under the provisions of subsection (3) of section 4, this Act does not apply and except any capital gain which is not includible in the total income of an assessee."

Then reference was made to section 16 (1) of the Income-tax Act, 1922 as it stood on the Statute book prior to its amendment in 1972-73 reads as follows:-

"In computing the total income of an assessee--

(a) Any sums exempted under the first and third provisos to subsection (1) of section 7, the second and third provisos to section 8, subsection (2) of section 14, section 15, section 15-A, section 15-AA, section 15-C, section 15-CC, section 15-D shall be included.

It was pointed out by the learned counsel for the respondents that in section 16 (1), as it stood on the Statute Book at the relevant time, section 15-H was not mentioned therein. It was, therefore, submitted that the Income-tax Tribunal had taken the correct view in regard to computation of total incomes of the non-resident assessee by excluding the amount exempted under section 15-H.

4. No doubt, the term "total income" in its ordinary literary meaning would indicate that it covers income from every quarter without any deductions, but the term "total income" has been defined in the Income-tax Act and as such the said definition is to be followed and not a ordinary meaning of the term total income.

As observed earlier, according to section 2 (15) of the Income-tax Act, 1922, total income means total income, profits and gains computed in the manner laid down in the Income-tax Act. The definition of total income did not end at "total amount of income, profits and gains" but it goes further and provides that "total income" is total amount of income' computed in the manner laid down in the Act. Computation of total income under the Act is provided in section 16 of the Act and at the relevant time section 15-H was not referred to in that provision whereas other provisions of Income-tax Act relating to exemption were specifically referred to. Then in the Finance Act, 1976, section 16 (1) was amended and one effect of such amendment was that section 15-H was specifically inserted in section 16 (1). From this, it follows that with effect from enforcement of the Finance Act, 1976, for purposes of computation of the total income of an assessee, the amount exempted under section 15-H was also to be included and not excluded. It also follows that prior to the coming into force of the Finance Act, 1976, for purposes of computation of the total income of an assessee under section 16 (1), the amount exempted under section 15-H was to be excluded. This is also apparent from the fact that in section 16 (1) as it stood at the relevant time, other sections under which various exemptions are granted to the assessee were specifically mentioned but section 15-H was significantly not mentioned.

5. In the circumstances, in spite of the fact that in "Explanation (b)", section 15-H is specifically referred to, we are of the view that at the relevant time when section 15-H was not mentioned in 16 (1) of the Income-tax Act, 1922, for computation of taxable income of a non-resident assessee, from the total income the amount exempted under section 15-H was to be excluded. In our view therefore, the Tribunal has taken correct view in these cases and we answer the questions referred to in these cases in the affirmative.

M.B.A./5175/K Reference answered in affirmative.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.