THE COMMISSIONER OF INCOME-TAX VS S.M. NASEEM ALLAHWALA
1991 P T D 843
[Karachi High Court]
Before Nasir Aslam Zahid and Muhammad Hussain Adil Khatri, JJ
THE COMMISSIONER OF INCOME-TAX
Versus
S.M. NASEEM ALLAHWALA
I.T.R. No.108 of 1984, decided on 29/04/1991.
(a) Income-tax Act (XI of 1922)---
----Ss. 10(2)(xvi) & 12---Scope and objects of Ss.10(2)(xvi) & 12---Wealth tax-- Deduction, requirement of---Any amount spent to accomplish or facilitate the running of business or on ground of commercial expediency which directly benefits the business is the money spent wholly and exclusively for earning profit and gain---Such expenses will cover tax which is statutorily levied on income yielding assets of the assessee non-payment of which may result in depletion or diminution of assets and properties or cause danger or risk which may diminish or reduce their value and utility---Assessee thus can claim deduction of Wealth Tax if he succeeds to establish that it is an expenditure made solely for the purpose of business, profession or vocation or incurred wholly for the purpose of making or earning profit or gain.
Under section 10 of the Income-tax Act, 1922 profit and gain from business, profession or vocation is charged to tax. Such profits or gains chargeable to tax are calculated in the prescribed manner after giving allowances as enumerated in this : action. One of them is mentioned in section 10(2)(xvi) -as any expenditure made wholly or exclusively for the purposes of business, profession or vocation. This expenditure should not be a capital or personal expenditure. If it falls under this category of expenditure the allowance will be admissible. Section 12 relates to levy of tax on profits and gains on income from other sources. The Income Tax Act categorises heads of income. If income is not derived from salaries, business, profession or vocation or properties then it shall be classified as income from other sources. Section 12(2) prescribes the mode of computing the income, profit and gain by making allowance as provided under it. An expenditure, which is not in the nature of capital or personal expenditure, incurred exclusive for the purpose of earning profit and gain shall be an admissible allowance. The assessee can claim deduction of wealth tax if he succeeds to establish that it is an expenditure made solely for the purpose of business, profession or vocation or incurred wholly for the purpose of making or earning income, profit or gain.
Wealth tax is charged on value of assets and properties which is calculated in the prescribed manner. Unless an assessee owns properties and assets which are brought in the net of his wealth tax cannot be charged. The incidence of ownership of properties is that all taxes, rates and charges levied on the property are to be paid by the owner. In case of non-payment penal provisions are attracted which inter alia include attachment and sale of property. Therefore, in order to keep the property and assets safe, free and clear it is necessary that all such taxes, charges and rates should be paid by the owner. Unless such payments are made the owner will not be in a position to make income, profit or gain. It will, therefore, be a necessary expenditure made solely and exclusively for the purpose of business, profession or vocation or incurred wholly and exclusively for purpose of making income, profit and gain as the case may be.
The wealth tax is levied under a statute and is not paid voluntarily by the assessee. He is bound to pay it. It is a necessary consequence of owning and possessing property and assets of a value beyond a certain limit. For deriving income, profit or gains from the properties and assets it is necessary that wealth tax if levied be paid. It therefore, follows that the payment of wealth-tax is necessary for proper of maintenance and existence of assets and properties from which income, profit or gain accrues. It can thus be concluded that it is "wholly or exclusively laid out for purposes of earning profits". Any amount spent to accomplish or facilitate the running of business or on ground of commercial expediency which directly benefits the business is the money spent wholly and exclusively for earning profit and gain. Such expenses will cover tax which. is statutorily levied on income yielding assets of the assessee non-payment of which may result in depletion or diminution of assets and properties or cause danger or risk which may diminish or reduce their value and utility.
Commissioner of Income-tax, Central Zone `B', Karachi v. Zakia Siddiqui 1989 PTD 135 fol.
(b) Income Tax Ordinance (XXXI of 1979)---
---S. 166(2)(a)(i)---Effect of S. 166(2)(a)(i)---Reference---Applicability of Income-tax Act, 1922 to proceedings under reference---Limitation---Effect of the operation of S.166(2)(a)(i), Income Tax Ordinance, 1979 is that all the proceedings including an application of reference to the High Court in relation to the assessment year in respect of which the return of income was filed before 1st July, 1979 i.e. the date of commencement of the Ordinance, must be dealt with under the Income-tax Act, 1922, as if the Ordinance had not been passed---When the reference application is made beyond the prescribed time, Income-tax Appellate Tribunal has no discretion but to. dismiss the same unless the statutory provision to the contrary, is made.
Commissioner of Income-tax, Central Zone `l3', Karachi v. Messrs Asbestos Cement Industries Ltd. 1988 PTD 227 fol.
Shaikh Haider for Applicant.
Iqbal Naeem Pasha for Respondent.
Date of hearing: 29th April, 1991.
JUDGMENT
MUHAMMAD HUSSAIN ADIL KHATRI, J.---The present Reference Application under section 136(2) of the Income Tax Ordinance, 1979, has been preferred by the Commissioner of Income Tax, Central Zone `A', Karachi. The facts are that the Respondent/Assessee is an individual who submitted his Return for the assessment year 1977-78. The assessment was completed under section 23(1) of the Income Tax Act, 1922. The Respondent during the assessment year was liable to pay wealth tax. He claimed allowance under section 10(2)(xvi) of the Income Tax Act, for the wealth-tax on the profit yielding assets. The Income Tax Officer did' not allow the said claim in his order passed on 9-3-1978. The Respondent preferred an appeal before the Asstt. Appellate Commissioner, who, allowed the same by his order dated 9-10-1980. The department being dissatisfied with the aforesaid order preferred an appeal before the Income Tax Appellate Tribunal but the same was dismissed. The present Applicant then submitted an application to the Income .Tax Appellate Tribunal under section 136(1) of .the Income Tax Ordinance, 1979, requesting to refer the following questions for. opinion to this Court:--
(1) "Whether on the facts and in the circumstances of the case, the Wealth Tax liability is an allowable expenditure under section 10(2) and section 12(2) of the Income Tax Act of 1922?"
The Tribunal dismissed the aforesaid Reference Application by Order dated 19-1-1984, on the ground that the Reference Application was to be filed under section 66(1) of the Income Tax Act, 1922, within the prescribed time of 60 days and that the said application was time-barred by 23 days. The Tribunal also observed that no application was filed for condonation of delay in filing the Reference Application. '
2. The Applicant has, therefore, sought answer to the following additional question also:--
"Whether on the facts and in the circumstances of the case, the Tribunal was right to hold that `Reference Application' ought to have been moved under section 66(1) of the Income Tax Act of 1922, and also within the period as prescribed therein, instead of making of an application under section 136(1) of the Ordinance of 1979?"
3. So far as the first question is concerned, it is covered by a decision of this Court in the case of Commissioner of Income Tax, Central Zone `B', Karachi v. Zakia Siddiqui, reported in 1989 P T D 135. After considering the case-law on the subject and comparing the Income Tax Act, 1922, with the amended provisions of , the Income Tax Act, 1961, of India, it was observed as under:--
"Under section 10, profit and gain from business, profession or vocation) A is charged to tax. Such profits or gains chargeable to tax are calculated in the prescribed manner after giving allowances as enumerated in this section. One of them is mentioned in section 10(2)(xvi) as any expenditure made wholly or exclusively for the purposes of business, profession or vocation. This expenditure should not be a capital or personal expenditure. If it falls under this category of expenditure the allowance will be inadmissible. Section 12 relates to levy of tax on profits and gains on income from other sources. The Income-tax Act categorises heads of income as stated above. If income is not derived from salaries, business, profession or vocation or properties then it shall be classified as income from other sources. Section 12(2) prescribes the mode of computing the income, profit and gain by making allowance as provided under it. An expenditure, which is not in the nature of capital or personal expenditure, incurred exclusively for the purpose of earning profit and gain shall be an admissible allowance. The assessee can claim deduction of wealth tax if he succeeds to establish that it is an expenditure made solely for the purpose of business, profession or vocation or incurred wholly for the purpose of making or earning income, profit or gain.
As stated earlier wealth tax is charged on value of assets and properties which is calculated in the prescribed manner. Unless an assessee owns properties and assets which are brought in the net of his wealth tax cannot be charged. The incidence of ownership of properties is that all taxes, rates and charges levied on the property are to be paid by the owner. In case of non-payment penal provisions are attracted which inter alia include attachment and sale of the property. Therefore, in order to keep the property and assets safe, free and clear it is necessary that all such taxes, charges and rates should be paid by the owner. Unless such payments are made the owner will not be in a position to make income, profit or gain. It will therefore, be a necessary expenditure made solely and exclusively for the purpose of business, profession or vocation or incurred wholly and exclusively for purpose of making income profit and gain as the case may be."
The wealth tax is levied under a statute and is not paid voluntarily by the assessee. He is bound to pay it. It is a necessary consequence of owning and possessing property and assets of a value beyond a certain limit. For deriving income, profit or gains from the properties and assets it is necessary that wealth tax if levied be paid. It therefore follows that the payment of wealth tax is necessary for proper maintenance and existence of assets and properties from which income, profit or gain accrues. It can thus be concluded that it is "wholly or exclusively laid out for purposes of earning profits". Any amount spent to accomplish or facilitate the running of business or on ground of commercial expediency which directly benefits the business is the money spent wholly and exclusively for earning profit and gain. Such expenses will cover tax which is statutorily levied on income yielding assets of the assessee non-payment of which may result in depletion or diminution of assets and properties or cause danger or risk which may diminish or reduce their value and utility."
4. So far as the second issue is concerned, it has been dealt with in several cases, holding that if the Reference Application is made beyond the prescribed time, Tribunal has no discretion but to dismiss the same unless the statutory provision to the contrary, is made and that the effect of the operation of clauses (a) and (i) of subsection (2) of section 166 of the Income Tax Ordinance, 1979, is that all the proceedings including an application for reference to the High Court in relation to the assessment year in respect .of which the Return of Income was filed before July 1, 1979, i.e. the date of commencement of the Ordinance, must be dealt with under the Income Tax Act, 1922, as if the Ordinance had not been passed. Reference may be made to the case of Commissioner of Income Tax, Central Zone `B', Karachi v. M/s. Asbestos Cement Industries Ltd., reported in 1988 P T D 227.
Mr. Shaikh Haider candidly conceded that both the questions are covered by the aforecited cases.
In view of the above legal position, no exception can be taken to the decision of the Appellate Tribunal and we accordingly dismiss the application with no order as to cost.
M.B.A./C-207/K Application dismissed.