Income Tax Ordinance (XXXI of 1979)---

----Fourth schedule, Cl. 6 & Ss.26 & 15---C.B.R. Circular No.4 of 1988-- Computation of the profits and gains of insurance business---Interest received by assessee, an insurance company on investments made by it in Khas Deposits Certificates which was included in the annual accounts submitted by it to Controller of Insurance under the Insurance Act, 1938 and was shown in balance of profit was not exempted from tax under the Ordinance---As soon as the profits and gains of insurance business were computed in accordance with the provision of S.26, read with R. 6 of IVth Schedule of the Ordinance, it became one unit of income which was not capable of being bifurcated for the purposes of charging to tax with different heads of income categorised in S.15 of the Ordinance.

Constitutional Petitions Nos.641 and 642 of 1988 and Messrs New Zealand Insurance

Company Limited v. Central Board of Revenue and another with Constitutional Petition No.D-736 of 1988 ref.

Shahenshah Hussain for Petitioner.

Shaikh Haider for Respondents.

Date of hearing: 13th February, 1991.

ORDER

S. HAIDER ALI PIRZADA, J.--(I) Office objection is overruled.

(2) Exemption is granted subject to all just exceptions.

(3) ... The petitioner through this petition has claimed the following reliefs:--

"(a) To declare the notice under section 85 of the Ordinance, 1979 for the assessment year 1989-90 as completely illegal, without jurisdiction and ab initio void.

(b) To declare the Circular No.4 of 1988 issued by respondent No.l to be of no legal authority and without any jurisdiction.

(c) To declare that the impugned portion of the assessment order in relation to the interest on K.D.Cs. and D.S.Cs. and Capital Gains is without lawful authority and to no legal effect.

(d) To restrain the respondents from proceeding further with any action in pursuance of the illegal notice under section 85 of the Ordinance of 1979 and to refrain from enforcing the assessment order and or raise demands thereunder and effect recovery in any manner whatsoever since the Company endeavours to pay the undisputed part of the assessment.

(e) To pass any other order or orders which in the opinion of this Honourable Court may consider proper having regard to the circumstances of the case.

(f) To award costs of the petition."

The facts leading to the filing off the above petition are that the petitioner Company is duly engaged in carrying on general insurance business. The Company is regularly assessed to income-tax. In the course of business it has over a period of time been making approved investments in Khas Deposit Certificates as prescribed by the Government of Pakistan in the department of National Saving Schemes. According to the petitioner the referred investments are exempt from income-tax under item 72 of Part I of the Second Schedule read with section 14 of the Income Tax Ordinance, 1979 (hereinafter referred to as the `Ordinance'). The exemptions have matured into the petitioner's vested right.

The petitioner Company on 26-1-1991 was served by respondent No.2 with a demand notice under section 85 of the Ordinance indicating an additional demand inclusive of tax assessed of income accruing from Khas Deposit Certificates, D.S.Cs. and Capital Gains. The demand of income accruing from Khas Deposit Certificates etc. is being made vide Circular No.4 of 1988, dated 19-4-1988. The respondent No.2 for the assessment year 1989-90 passed an assessment order and has also inter alia taxed the income earned by the Company in the shape of accruing interest on Khas Deposit Certificates.

The above petition is filed by the Central Insurance Company Limited challenging the notice under section 85 of the Ordinance as completely illegal, invalid, without jurisdiction and ab initio void.

Mr. Shahanshah Hussain, learned counsel for the petitioner has brought to our notice an unreported judgment, dated 30-7-1989 of this Court in the case of this very petitioner (Constitutional Petitions Nos.641 and 642 of 1988 along with Constitutional Petition No.D-736 of 1988, Messrs New Zealand Insurance Company Limited v. Central Board of Revenue and another), This was a case of the petitioner in respect of assessment yews 1986 87 and 1987-88 challenging the notices dated 3-5-1988 issued under section 65 of the Ordnance. Tire twelve petitions were disposed of by common judgment, dated 30-7-1989. The learned Judges of the Division Bench came to the conclusion after giving cogent reasons, which are fully supported by various authorities discussed by there in the said judgment that `accordingly, the interest income on securities derived by an insurance company which is included in the balance of profit declared by it in As annual account submitted to Controller of Insurance under the Insurance Act, 1938, loses its character as `interest' income on securities and becomes part of profits and gains of insurance business, and as such is liable to charge of the tax under the Ordinance accordingly. In our view as soon as the profits and gains of insurance business are computed in accordance with the provision of section 26 read with Rule 6 of IV Schedule ibid, it becomes one unit of income which is not capable of being bifurcated for the purposes of charging to tax into different heads of income categorised in section 15 of the Ordinance. We, accordingly, hold that the interest received by the petitioners in the above cases on investments made by them in Khas Deposit Certificates which was included in the annual accounts submitted by them to Controller of Insurance under the Insurance Act of 19.38, and was shown in the balance of profit was not exempted from tax under the Ordinance".

We respectfully agree with the view expressed in the said decision. We see no reason to take different view. We accordingly hold that the interest received by the petitioner of investment made by it in Khas Deposit Certificates which was included in the annual accounts submitted to the Controller of Insurance under the Insurance Act of 1938, and was shown in the 1 balance of profits was not exempted from tax under the Ordinance.

We hold that notice under section 85 of the Ordinance issued to the petitioner in the above petition was valid. We accordingly dismiss the petition in limine.

Mr. Shahanshah Hussain has submitted that Messrs New Zealand Insurance Company Limited and other Insurance companies have already filed petitions for leave to appeal before the Honourable Supreme Court. The Honourable Supreme Court has already granted leave in those petitions and stayed the recovery of the disputed amount.

(4) We feel that it would be appropriate to allow the petitioner an opportunity to avail the remedy of approaching the Supreme Court. Therefore, we direct the respondents not to take any coercive measures for recovery of the above amount for a period of 30 days from today. Consequently the application (Civil Miscellaneous Application No389 of 1991) is disposed of as having become infructuous.

M.BA./C-239/KOrder accordingly.