04-26-2011, 08:34 PM
2008 P T D 1075
[Karachi High Court]
Before Mrs. Yasmin Abbasey and Nadeem Azhar Siddiqi, JJ
MUHAMMAD IQBAL GHORI
Versus
COMMISSIONER OF INCOME TAX, KARACHI
I.T.R.As. Nos.357, 358 and 36'7 of 2007, decided on 5th April, 2008.
Income Tax Ordinance (XLIX of 2001)---
----Ss.12 & 13---Income Tax Rules, 2001, R.9(3) & (5)(b)---Perquisite---Salary---Value and scope of perquisites---Running and maintenance expenses of a vehicle provided by the employer to the employee directly incurred by the employer come within definition of `perquisite' and will be included in the taxable income of the employee (assessee)---Principles.
I.T.A. No.490/KB of 2006 and Black's Law Dictionary Sixth Edition ref.
Aziz H. Nishtar for Applicant.
Jawaid Farooqi for Respondent.
ORDER
NADEEM AZHAR SIDDIQI, J.---The appellant has challenged the order, dated 30-5-2007 passed by .the learned Income Tax Appellate Tribunal of Pakistan-Karachi (hereinafter referred to as the Tribunal) allowing the appeal of the respondent.
The facts necessary for the disposal of the above said reference are that the applicant is salaried individual employee with Pak-Libya Holding Company (Pvt.) Limited and furnished annual statement of deduction of income tax from salary for the tax year, 2005 as prescribed under the Income Tax Rules, 2002.
The Taxation Officer issued notice, dated 31-12-2005 for including the running and maintenance expenses of vehicle provided to the applicant by his employer. The applicant has replied the notice maintaining that the vehicle running and maintenance expenses were purely company's business expenses incurred on the maintaining the company owned vehicles.
The Taxation Officer issued further notices and finalized the assessment and issued demand notice treating the running and maintenance expenses of vehicles as income of the applicant. The assessment order was challenged before the Commissioner (Appeals) who passed order, dated 13-4-2006 in favour of applicant and the Taxation Officer was directed to exclude the running and maintenance expenses from the taxable income of the applicant. Against the order of Commissioner (Appeals) the respondent preferred appeal before the Tribunal who allowed the appeal and upheld the order of Taxation Officer.
The learned counsel for the applicant has framed the following questions of law--
(i) Whether on the facts and circumstances of the case the learned ITAT was correct in annulling the Commissioner (Appeals) order.
(ii) Whether on the facts and circumstances of the case the learned Tribunal was justified in law in holding that vehicle running and maintenance expenses incurred by the employer are not covered under Rule 9(5) but under rule 9(3).
The learned counsel for applicant submits that the learned Appellate Tribunal has erred in law in accepting the department's point of view that the vehicles running and maintenance expenses were a benefit in kind separate from the scheme of addition into employee's income as provided under Rule 9(5). He further submits that the two learned Benches of the Tribunal has taken conflicting view in the matters and placed on record the order passed in I.T.A. No.490/KB of 2006, dated 8-8-2007.
The learned counsel for respondent supported the judgment of the learned Tribunal and submits that no question of law has arisen from the judgment of the Tribunal and that the running and maintenance charges of vehicles were rightly included in the taxable income of applicant as in the salary statement it has been clearly stated that perquisite was given in kind and the same is taxable in view of Rule 9(3) of the Income Tax Rules, 2002.
The controversy appears to be the additions of running and maintenance expenses of vehicle provided to the applicant by the employer in the taxable income of the applicants. It is not disputed that the employer has provided the vehicle and has directly paid the expenses. The applicant claims that the expenses cannot be added in their taxable income in view of Rule 9(5)(b). The view of the department is that Rule 9(3) and Rule 9(5)(b) caters two different situations and perquisites were rightly added in the income under Rule 9(3) of the Rules.
In terms of Clause (b) of subsection (2) of section 12 salary means any perquisite, whether convertible to money or not and is chargeable to tax under the head salary. Section 13 of the Ordinance provides that for purpose of computing the income of an employee for a tax year chargeable to tax under the head "salary" the value of any perquisite provided by an employer to the employee in that year is included in the employee's salary under section 12 shall be determined in accordance with section 13. Subsection (3) of section 13 provides that where a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee, the amount chargeable to tax to the employee under the head "salary" for that year shall include an amount computed as may be prescribed. Subsection (13) of section 13 provides that where an employer has provided an employee with perquisite which is not covered by subsection (3) through (12), the amount chargeable to tax to the employee under the head "salary" for that year shall include the fair market value of the perquisite determined at the time it is provided as reduced by any payment made by the employee for the perquisite except where the rules, if any, provides otherwise. From the perusal of above sections it appears that the salary includes the amount computed as may be prescribed for providing a motor vehicle as well as perquisite provided by the employer which is not covered by subsection (3) through (12). The provisions of Rule 9(3) are covered by subsection (13) of section 13 of the Ordinance and Rule 9(5)(b) is covered by subsection (3) of section 13 of the Ordinance. The contention of Mr. Jawaid Farooqi has force that sub-rules (3) and (5)(b) of Rule 9 caters different situations and the perquisite provided by the employer is to be included in the salary and chargeable to tax. The word "perquisite" has not been defined in the Income Tax Ordinance, 2001 and Income Tax Rules, 2002. The word "perquisites" is defined in Black's Law Dictionary sixth edition as under---
"Emoluments, privileges, fringe benefits, or other incidental - profits or benefits attaching to an office or employment position in addition to regular salary or wages. Shortened term "perks" is used with reference to such extraordinary benefits afforded to business executives (e.g. free cars, club membership, insurance, etc.)."
From the above definition it appears that all emoluments, privileges, fringe benefits or other emoluments provided by the employer to the employee are to be included in the salary.
The Tribunal has held as under---
"(13) I am however, not in agreement with the learned A.R. as Clause (b) of Sub-Rule (5) of Rule 9 deals with cost incurred by employer for acquiring the motor vehicle in case the motor vehicle is provided by the employer for private use. This provision is relevant in the situation where matter pertains to providing of motor vehicles and where motor vehicle is provided by an employer partly for private use of the employee, in that way the value of the perquisite would be (i) 5% of the cost to employer for acquiring the motor vehicle (ii) or the fair market value of the vehicle at the commencement of lease, if taken on lease by the employer, In the circumstances where, not the, running and maintenance of the vehicle but cost of acquiring the motor vehicle is involved, Rule 9(5)(b) shall apply as this simply deals with the valuation of the provision of motor vehicle, for the purpose of section 13(3) of the Income Tax Ordinance, 2001 and does not refer the issue of running and maintenance provided by the employer. I, therefore, find reasons to direct the taxation officer that amount pertaining to running and mainÂtenance incurred by the employee directly be taxed under the provisions contained in Rule 9(3) of the Income Tax Rules, 2002."
From the above discussion it appears that running and' maintenance expenses of a vehicle provided by the employer to the employee directly incurred by the employer come within definition of perquisite and will be included in the taxable income of the applicant.
In view of the above we do not find any illegality, infirmity and perversity in .the order of the Tribunal which is maintained and this Income Tax Reference Application is dismissed in limine with no order as to costs.
This order mutatis mutandis will also apply in connected ITRA Nos.358 to 367 of 2007.
M.B.A./M-33/K Applications dismissed
[Karachi High Court]
Before Mrs. Yasmin Abbasey and Nadeem Azhar Siddiqi, JJ
MUHAMMAD IQBAL GHORI
Versus
COMMISSIONER OF INCOME TAX, KARACHI
I.T.R.As. Nos.357, 358 and 36'7 of 2007, decided on 5th April, 2008.
Income Tax Ordinance (XLIX of 2001)---
----Ss.12 & 13---Income Tax Rules, 2001, R.9(3) & (5)(b)---Perquisite---Salary---Value and scope of perquisites---Running and maintenance expenses of a vehicle provided by the employer to the employee directly incurred by the employer come within definition of `perquisite' and will be included in the taxable income of the employee (assessee)---Principles.
I.T.A. No.490/KB of 2006 and Black's Law Dictionary Sixth Edition ref.
Aziz H. Nishtar for Applicant.
Jawaid Farooqi for Respondent.
ORDER
NADEEM AZHAR SIDDIQI, J.---The appellant has challenged the order, dated 30-5-2007 passed by .the learned Income Tax Appellate Tribunal of Pakistan-Karachi (hereinafter referred to as the Tribunal) allowing the appeal of the respondent.
The facts necessary for the disposal of the above said reference are that the applicant is salaried individual employee with Pak-Libya Holding Company (Pvt.) Limited and furnished annual statement of deduction of income tax from salary for the tax year, 2005 as prescribed under the Income Tax Rules, 2002.
The Taxation Officer issued notice, dated 31-12-2005 for including the running and maintenance expenses of vehicle provided to the applicant by his employer. The applicant has replied the notice maintaining that the vehicle running and maintenance expenses were purely company's business expenses incurred on the maintaining the company owned vehicles.
The Taxation Officer issued further notices and finalized the assessment and issued demand notice treating the running and maintenance expenses of vehicles as income of the applicant. The assessment order was challenged before the Commissioner (Appeals) who passed order, dated 13-4-2006 in favour of applicant and the Taxation Officer was directed to exclude the running and maintenance expenses from the taxable income of the applicant. Against the order of Commissioner (Appeals) the respondent preferred appeal before the Tribunal who allowed the appeal and upheld the order of Taxation Officer.
The learned counsel for the applicant has framed the following questions of law--
(i) Whether on the facts and circumstances of the case the learned ITAT was correct in annulling the Commissioner (Appeals) order.
(ii) Whether on the facts and circumstances of the case the learned Tribunal was justified in law in holding that vehicle running and maintenance expenses incurred by the employer are not covered under Rule 9(5) but under rule 9(3).
The learned counsel for applicant submits that the learned Appellate Tribunal has erred in law in accepting the department's point of view that the vehicles running and maintenance expenses were a benefit in kind separate from the scheme of addition into employee's income as provided under Rule 9(5). He further submits that the two learned Benches of the Tribunal has taken conflicting view in the matters and placed on record the order passed in I.T.A. No.490/KB of 2006, dated 8-8-2007.
The learned counsel for respondent supported the judgment of the learned Tribunal and submits that no question of law has arisen from the judgment of the Tribunal and that the running and maintenance charges of vehicles were rightly included in the taxable income of applicant as in the salary statement it has been clearly stated that perquisite was given in kind and the same is taxable in view of Rule 9(3) of the Income Tax Rules, 2002.
The controversy appears to be the additions of running and maintenance expenses of vehicle provided to the applicant by the employer in the taxable income of the applicants. It is not disputed that the employer has provided the vehicle and has directly paid the expenses. The applicant claims that the expenses cannot be added in their taxable income in view of Rule 9(5)(b). The view of the department is that Rule 9(3) and Rule 9(5)(b) caters two different situations and perquisites were rightly added in the income under Rule 9(3) of the Rules.
In terms of Clause (b) of subsection (2) of section 12 salary means any perquisite, whether convertible to money or not and is chargeable to tax under the head salary. Section 13 of the Ordinance provides that for purpose of computing the income of an employee for a tax year chargeable to tax under the head "salary" the value of any perquisite provided by an employer to the employee in that year is included in the employee's salary under section 12 shall be determined in accordance with section 13. Subsection (3) of section 13 provides that where a motor vehicle is provided by an employer to an employee wholly or partly for the private use of the employee, the amount chargeable to tax to the employee under the head "salary" for that year shall include an amount computed as may be prescribed. Subsection (13) of section 13 provides that where an employer has provided an employee with perquisite which is not covered by subsection (3) through (12), the amount chargeable to tax to the employee under the head "salary" for that year shall include the fair market value of the perquisite determined at the time it is provided as reduced by any payment made by the employee for the perquisite except where the rules, if any, provides otherwise. From the perusal of above sections it appears that the salary includes the amount computed as may be prescribed for providing a motor vehicle as well as perquisite provided by the employer which is not covered by subsection (3) through (12). The provisions of Rule 9(3) are covered by subsection (13) of section 13 of the Ordinance and Rule 9(5)(b) is covered by subsection (3) of section 13 of the Ordinance. The contention of Mr. Jawaid Farooqi has force that sub-rules (3) and (5)(b) of Rule 9 caters different situations and the perquisite provided by the employer is to be included in the salary and chargeable to tax. The word "perquisite" has not been defined in the Income Tax Ordinance, 2001 and Income Tax Rules, 2002. The word "perquisites" is defined in Black's Law Dictionary sixth edition as under---
"Emoluments, privileges, fringe benefits, or other incidental - profits or benefits attaching to an office or employment position in addition to regular salary or wages. Shortened term "perks" is used with reference to such extraordinary benefits afforded to business executives (e.g. free cars, club membership, insurance, etc.)."
From the above definition it appears that all emoluments, privileges, fringe benefits or other emoluments provided by the employer to the employee are to be included in the salary.
The Tribunal has held as under---
"(13) I am however, not in agreement with the learned A.R. as Clause (b) of Sub-Rule (5) of Rule 9 deals with cost incurred by employer for acquiring the motor vehicle in case the motor vehicle is provided by the employer for private use. This provision is relevant in the situation where matter pertains to providing of motor vehicles and where motor vehicle is provided by an employer partly for private use of the employee, in that way the value of the perquisite would be (i) 5% of the cost to employer for acquiring the motor vehicle (ii) or the fair market value of the vehicle at the commencement of lease, if taken on lease by the employer, In the circumstances where, not the, running and maintenance of the vehicle but cost of acquiring the motor vehicle is involved, Rule 9(5)(b) shall apply as this simply deals with the valuation of the provision of motor vehicle, for the purpose of section 13(3) of the Income Tax Ordinance, 2001 and does not refer the issue of running and maintenance provided by the employer. I, therefore, find reasons to direct the taxation officer that amount pertaining to running and mainÂtenance incurred by the employee directly be taxed under the provisions contained in Rule 9(3) of the Income Tax Rules, 2002."
From the above discussion it appears that running and' maintenance expenses of a vehicle provided by the employer to the employee directly incurred by the employer come within definition of perquisite and will be included in the taxable income of the applicant.
In view of the above we do not find any illegality, infirmity and perversity in .the order of the Tribunal which is maintained and this Income Tax Reference Application is dismissed in limine with no order as to costs.
This order mutatis mutandis will also apply in connected ITRA Nos.358 to 367 of 2007.
M.B.A./M-33/K Applications dismissed
