Income Tax Ordinance (XXXI of 1979)---

----First Sched., Part III & Para. A---Provision/liability for tax falls within the preview of the expression "income as retained for meeting working capital requirements" as used in para. A, Part III of First Sched. to the Ordinance and is to be excluded from the total income for levy of surcharge.

Commissioner of Income-tax v. Messrs Pakistan Tobacco Co. Ltd. 1988 PTD 66 fol.

Waheed Farooqui for Applicant.

Nasim Ahmed Khan for Respondent.

Date of hearing: 4th February, 1992.

JUDGMENT

MAMOON KAZI, J.---The learned Income Tax Appellate Tribunal while deciding the Second Appeal of the parties held that the provision/liability for tax falls within the purview of the expression "income as retained for meeting working capital requirements" as used in Para. A of' Part III of the First Schedule to the Income Tax Ordinance. 1979 read with section 10 thereof, and hence it is to be excluded from the total income for levy of surcharge. The department was aggrieved by such order and therefore, the following questions have been referred to this Court for determination:

"Question of Law for 1977-78:

Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the amount of provision/liability of tax falls .within the purview of the expression "income as has been retained for meeting working capital requirement" as used .in Part III of the First Schedule to Finance Act, 1977, as amended by substituting through the Ordinance 11 of 1978 and section 4 of the Finance Act and hence it was to be excluded from the total income for levy of surcharge?"

Question of Law for 1978-79:

"Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the provision/liability for tax falls within the purview of the expression "income as has been retained for meeting working capital requirement" as used in Part III of the First Schedule to Finance Ordinance, 1978, and hence it was to be excluded from the total income for levy of surcharge?"

Question of Law for 1979-80:

"Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the amount of provision/liability for tax falls within the purview of the expression "income as has been retained for meeting Working capital requirement" as used in Para. `A' of Part III of the First Schedule to the Income Tax Ordinance, 1979, read with section 10 of it and hence was to be excluded from the total income for levy of surcharge?"

2. We find that the questions have already been answered by another. Division Bench of this Court in the case of Commissioner of Income Tax v. Messrs Pakistan Tobacco Co. Ltd. 1988 PTD 66 as would appear from the following observations made by the Court at para. 14 of the judgment:---

"14.From the above inferred definition of the words, "working capital", "current liability" and "current assets", it is evident that Macmillan Dictionary of Accounting by R.H. Parker has excluded provisions for taxation and proposed dividends from the ambit of current liabilities. The other books have not referred to the above aspect. It may be observed that the exclusion of the above two items may be justified in a case of a new set-up, in which working capital would not require any provision for the taxation and for the proposed dividends' as till the time the factory goes into production or a business operates profitably the question of payment of any income-tax or dividend would not arise. The other reason may be that the learned author had in mind only the items which are either in liquid form or are readily liquidable and can be used for earning profit in day to day business. But there seems to be consensus among the learned authors as to the definition of the words "working capital", namely, that is the difference between current assets and current liabilities. In some of the above-cited definitions of the term "current liabilities" the provision for taxation has been included. We are also inclined to hold that the current liabilities will include a liability to pay inter alia advance tax, and therefore, falls within the ambit of working capital requirement .

3. Since the questions have already been decided by another learned Division Bench of this Court, the questions are answered accordingly, that is told say, m the affirmative.

M.B.A./C-270/K Reference answered.