2012 P T D 1279 [Peshawar High Court] Before Khalid Mahmood, J SAJJAD ALI and others versus SECRETARY (WITHHOLDING TAX), ISLAMABAD and 6 others Writ Petition No.252 of 2011, decided on 29th March, 2012. Income Tax Ordinance (XLIX of 2001)--- ----Ss. 12, 53 & Second Sched., Part-I, Cl. 39---Constitution of Pakistan, Art. 199--- Constitutional petition---engineers of Tarbela Dam Power Station---Special allowance in shape of generation allowance granted to such Engineers by Wapda due to hard work and risk job thereof---deduction of income tax on such allowance by authority treating same to be part and parcel of petitioners' salary---validity---special allowance would mean unusual and extraordinary allowance extended by Government from time to time in view of rendering of such services by particular employees---special allowance and benefit would not be extended in ordinary course of time, but would be extended normally in rare cases in consideration of critical and arduous nature of duties of employees of a particular department or institution to which legislature itself had rightly extended exemption--- Special allowance or benefit or other perquisite within meaning of S.12 of Income Tax Ordinance, 2001 was completely exempted from tax deduction---no tax could be levied on special allowance or benefit in view of Cl. 39, Part-I of Second Sched. of Income Tax Ordinance, 2001---Petitioners had been deprived of statutory exemption from income tax against such allowance, which was being enjoyed by other similar employees---question of discrimination and interpretation of law was involved in the present case, thus, High Court could Judicially review impugned order of deduction---high Court accepted constitutional petition in circumstances. Commissioner Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. 2009 SCMR 1279 ref. Zulfiqar Ali Khalil for Petitioners. Fazal-i-Gul along with Ashraf Ali Marwat Deputy Commissioner Legal Income Tax for Respondents. JUDGMENT Date of hearing: 29th March, 2012. KHALID MAHMOOD, J.---Sajjad Ali and 53 other petitioners seek the constitutional jurisdiction of this Court praying, for:-- 1 Pak Law Publication
"that on acceptance of instant petition, this honourable Court may issue an order to respondents to stop deducting income tax on the Generation Allowance of the petitioners, order the respondents to refund the amount already deducted from their Gross Salaries from 2008 to date." 2. As per contents of petition, petitioners Nos. 1 to 54 are the permanent employees as Engineers of Tarbela Dam Power Station and Generation Allowance was sanctioned by WAPDA to the petitioners in view of the hard work and risky job of the Generation Staff, which is exempt under section 53 r/w clause 39 of the Second Schedule to the Income Tax Ordinance but tax officials started deducting income tax on generation allowance from 2008. Hence, this writ petition. 3. Learned counsel for petitioners argued that General Allowance being a special allowance is exempt from payment of income tax in view of the provisions contained in section 53 r/w clause 39 of the Second Schedule of Income Tax Ordinance. It was argued that in Chashma and Warsak Stations income tax is not charged on General Allowance whereas the same has wrongly and illegally been deducted in case of petitioners. 4. On the other hand, learned counsel for respondents opposed the contentions of petitioners and contended that generation allowance being part and parcel of pay is liable to be subjected to payment of tax. 5. Arguments heard and record perused. 6. Since petitioners claim themselves as permanent employees working as Engineers of Tarbela Dam Power Station, therefore, it would be advantageous to reproduce section 12 of Income Tax Ordinance, 2001, which reads as under:-- "12. Salary.---(1) Any salary received by an employee in a tax year, other than salary that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head "Salary" (2) Salary means any amount received by an employee from any employment whether of a revenue or capital nature, including--- (a) any pay, wages or other remuneration provided to an employee, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity or work condition supplements (such as for unpleasant or dangerous working conditions) (Provided that any bonus paid or payable to corporate employees received salary income of one million rupees or more (excluding bonus) in tax year 2010, shall be chargeable to tax at the rate provided in paragraph (2) of Division 1 of Part I of the First Schedule). (b) any perquisite, whether convertible to money or not; (c) the amount of any allowance provided by an employer to an employee including a cost of living subsistence, rent, utilities, education, entertainment or travel allowance, but shall not include any allowance solely expended in the performance of the employee's duties of employment. (d) the amount of any expenditure incurred by an employee that is paid or reimbursed 2 Pak Law Publication
by the employer, other than expenditure incurred on behalf of the employer in the performance of the employee's duties of employment. (e) the amount of any profits in lieu of, or in addition to, salary or wages, including any amount received--- (i) as consideration for a person's agreement to enter into an employment relationship. (ii) as consideration for an employee's agreement to any conditions of employment or any changes to the employee's conditions of employment. (iii) on termination of employment, whether paid voluntarily or under an agreement, including any compensation for redundancy or loss of employment and golden handshake payments; (iv) from a provident or other find, to the extent to which the amount is not a repayment of contributions made by the employee to the fund in respect of which the employee was not entitled to a deduction; and (v) as consideration for an employee's agreement to a restrictive covenant in respect of any past, present or prospective employment; (v) any pension or annuity, or any supplement to a pension or annuity; and (g) any amount chargeable to tax as "Salary" under section 14. 7. The income or benefit, which are exempt from the tax has specifically been laid down in section 53 of Income Tax Ordinance, which is as under:-- "53. Exemptions and tax concessions in the Second Schedule.---(1) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be- (a) exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein; (b) subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein; (c) allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or (d) exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein. (1A) Where any income which is exempt from tax under any provision of the Second Schedule, such income, as may be specified in the said Schedule and subject to such conditions as may be specified therein, shall be included in the total income, however, the tax shall not be payable in respect of such income. 8. The Second Schedule pertaining exemptions and tax concessions (Part I Exemptions from Total Income) is reproduced hereinbelow for the sake of convenience:-- "Incomes, or classes of income, or persons or classes of persons, enumerated below, shall be exempt from tax, subject to the conditions and to the extent specified hereunder:-- 3 Pak Law Publication
(3) Any income chargeable under the head "Salary" received by a person, who, not being a citizen of Pakistan, is engaged as an expert or technical, professional, scientific advisor or consultant or senior management staff by institutions of the Agha Khan Development Network, (Pakistan) listed in Schedule I of the Accord and Protocol dated, November 13, 1994 executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network. (4) Any income chargeable under the head "Salary" received by- (a) a Pakistani seafarer, working on Pakistan flag vessels for one hundred and eighty three days or more during a tax year; or (b) a Pakistani seafarer working on a foreign vessel provided that such income is remitted to Pakistan, not later than two months of the relevant income year, through normal banking channels. (5) Any allowance or perquisite paid or allowed as such outside Pakistan by the Government to a citizen of Pakistan for rendering service outside Pakistan. (39) Any special allowance or benefit (not being entertainment or conveyance allowance) or other perquisite within the meaning of section 12 specially granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit. (underlining is us). 9. In the light of the legal proposition of the aspect of generation allowance being a special allowance has been deducted by respondents/ department. Against the said deduction, Mr. Maqsood Butt preferred appeal before the Special Officer, Salary Circle, Faisalabad. The appeal was accepted and returns filed excluding the generation allowance were accepted. It was held as under:-- "The assessee is working in a unit generation electricity. The nature of job is quite hazardous and needs special diet. According to my understanding the allowance granted is to cover all the performance of the duties of the assesses and stands covered under Clause 39 of Second Schedule of Income Tax Ordinance. 1979. In view of the above stated discussion of the learned I.T.T. Lahore, the amount of Rs.12,000 on account of generation allowance is deleted from the income of the assessee." 10. The generation allowance being a special allowance has been deducted by respondents/department and one Ghulam Abdul also preferred appeal before the Commissioner of Income Tax (Appeals) Zone, which was accepted and it was directed that returns be filed by excluding the generation allowance. It was held as under:-- "The main contention is that the employee on duty of generation of electricity should remain consistently proficient in the discharge of their duties. Any determination in the slandered of proficiency will debar the employer from the entitlement of generation allowance. This is counting at allowance, which is attached with (SIC) as well as physical (SIC) in the discharge of their official duties during the working hours. The duty is a hazardous one and the employee has to consistently set his physical (SIC) also from the doctor of the department, who examines him from time to time to judge the mental as well as physical condition of the employee and to give the verdict he is profusions one in the discharge of his routine duties and for that reason the applicant has to regulate his 4 Pak Law Publication
diet and complete doses of vitamins and mineral and protein to keep himself. Only persons proficient their job and entitled to proficiency allowance the moment they do not remain proficient, this allowance is discontinued. In view of the level (SIC) the assessment under section 62 cannot be sustained and it will have to be completed under section 59(1) without addition of proficiency allowance because it is condition precedent that the employee should remain mentally and physically fit or he will be debarred from getting proficiency allowance. The appeal succeeds to the extent and in the manner indicated above and the Income Tax Officer is directed to accept the return under section 59(I) without adding the proficiency allowance" 11. Respondents were asked that respondents have ever availed any remedy against the above said orders of exemption, the answer was in negative. Rather it was admitted by the respondents that they are still enjoying the exemption from Income tax against the said special allowance. Petitioners being similarly placed employees have been deprived from the statutory exemption, which is clear violation of Article 25 of the Constitution of Islamic Republic of Pakistan, 1973. 12. This Court on 9-2-2012 had formulated following questions to address the main point of controversy:-- (1) Whether the certificate dated 3-6-2010 was validly issued and genuine? (2) Whether the order so passed was challenged by FBR in respect of Regime provided in second Schedule to the Income Tax Ordinance, 2001? (3) Whether any action has been taken against the officer who had passed such order and thereby deprived revenue to the public exchequer? 13. On the next date of hearing after consideration and consultation the representative of respondents appeared and replied to the above mentioned questions as under:-- "Ashraf Ali Marwat, Deputy Commissioner, Income Tax Department, on the Court queries stated on 9-2-2012, submitted in reply to the same in seriatim, as under:-- (1) Certificate dated 3-6-2010 was validly issued and genuine. (2) The order dated 3-6-2010 was not challenged by. respondents F.B.R. in any forum, provided in the Income Tax Ordinance, 2001. (3) No action has been passed against the officer, who has issued the certificate dated 3-6-2010. He further stated that 'special' allowance or benefit is determined by Finance Division or the Auditor General Officer and is expressly stated so in the salary slip of all the government employees. The generation allowance is not a 'special' allowance, as the same has not been stated so by the competent authority. Furthermore, the appropriate and prescribed manner for seeking an exemption is to obtain a certificate under section 153 of the Income Tax Ordinance, 2001. He further stated that as the petitioner has a remedy, he may approach the competent authority to obtain the same." 5 Pak Law Publication
14. The controversy between the parties is regarding the deduction of income tax from the special allowance and the respondents vehemently argued that petitioners have not invoked the jurisdiction of proper forum laid down in Income Tax Ordinance, hence, the petition is not entertainable. In the present case, question of discrimination and interpretation of law is involved, hence, this court in its jurisdiction can review the impugned order of deduction from the special allowance in the shape of generation allowance granted to petitioners. In this regard Apex Court in case of "Commissioner Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. reported as 2009 SCMR 1279 and has thrashed out the similar matter, which is as under:-- "Where a statutory functionary acted mala fide or in a partial, unjust and oppressive manner, the High Court, in the exercise of its writ jurisdiction, had power to grant relief to the aggrieved party." 15. It is an admitted fact that order dated 3-6-2010 has not been challenged by the respondents before any forum. Hence, the exemption from deducting the income tax against the special allowance from one set of employees of the same Department and depriving other similarly placed officials being discriminatory is clear violation of Article 25 of the Constitution of Islamic Republic of Pakistan, 1973. 16. Special Allowance means unusual and extraordinary allowance, which is extended by the Government from time to time in view of rendering of such special services by particular employees. It is clear that "Special Allowance" and "benefit" is normally extended in rare cases in consideration of critical and arduous nature of duties of the employees of a particular Department or Institution to which exemption has rightly been extended by the legislature itself. This "Special Allowance" and "benefit" is not extended in ordinary course of time. It is, therefore, crystal clear that any "special allowance" or "benefit" or other perquisite within the meaning of section 12 specially granted shall not in any manner be liable to tax deduction. The special allowance is thus completely exempted from tax for salaried persons. It has been brought to the notice of the Court that respondents on their own deducted the tax amount in lump sum from the monthly gross salary of Government employees wrongly and illegally by including such "special allowance" and "benefit", without adhering to this important legal aspect of the matter and the basic exemption granted by the Government from time to time. No tax shall be levied on "special allowance" or "benefit" in view of clause 39 ibid. 17. In the light of the above discussion, this writ petition stands allowed, in terms stated hereinabove, with no order as to costs. S.A.K./175/P Petition accepted. 6 Pak Law Publication