Tax on ESSI''s income: SC sets aside PHC''s verdict

The Supreme Court, setting aside a verdict of Peshawar High Court (PHC), held that Khyber Pukhtukhawa Employees Social Security Institution''s (ESSI''s) income could be taxed under Income Tax Ordinance 1979.
Commissioner of Income Tax, Peshawar, had filed an appeal in the apex court against the PHC verdict. The disputed demand for tax by Commissioner of Income Tax Peshawar on the contributions collected by ESSI is for period 1999-2002 and 2002-2003.
The Commissioner of Income Tax sought to levy tax on the ESSI''s income on the basis that it had income within the meaning of the Income Tax Ordinance, 1979 and did not enjoy any exemption.
The ESSI resisted the claim on two grounds: Firstly, it contended that the receipts did not constitute ''income'' within the meaning of the 1979 Ordinance. Thus, no question arose of there being any income that could be brought to tax. Secondly, even if the said receipts amounted to ''income'' the ESSI was entitled to the exemption contained in clause (62) of Part I of the Second Schedule to the 1979 Ordinance.
Both grounds were rejected by the tax authorities and the ESSI''s appeal before the Appellate Tribunal also failed. The ESSI then filed a tax reference before the Peshawar High Court, which accepted its plea.
Justice Munib Akhtar in a six-page judgment noted that a bare perusal of section 2(24) of Income Tax Ordinance, 1979 shows that the definition of ''income'' is inclusive and not exhaustive. Furthermore, the case law on what is meant by ''income'' under the statute, which extends over a period approaching a century (and indeed emanated under the Income Tax Act, 1922) has established as a bedrock principle that this term is of the widest connotation, amplitude and application.
The apex court judgment noted that in Gopal Saran Narain Singh v. Commissioner of Income Tax (1935) 3 ITR 237, the Privy Council had earlier also ruled that "[a]nything which can properly be described as income, is taxable under the Act unless expressly exempted".
It said that it was impossible to accept the ESSI submission that the amounts received by it, including the contributions under Section 20, were not ''income'' within the meaning of the statute.
The court noted that the second ground whether Clause 62 of Part I of the Second Schedule to the 1979 Ordinance was applicable in the facts and circumstances of the case.
The court observed that the contributions made by the employers under Section 20 are not ''voluntary contributions'', but are clearly both statutory and mandatory. Failure to make timely payment exposes the delinquent employer to the consequences laid down in Section 23. Thus, Clause 62 had no application.