Income Tax Ordinance (XXXI of 1979)---

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

Commissioner of Income Tax v. Pakistan Tobacco Co. Ltd. 1988 PTD 66 fol.

Sheikh Haider for Applicant.

Sirajul Haq for Mansoor Ahmed Khan for Respondent.

Date of hearing: 18th December, 1991.

JUDGMENT

MAMOON KAZ1, J.---In this case while disposing of the second appeal the learned Income Tax Appellate Tribunal held that the provision/liability for tax falls within the purview of the expression "income retained for meeting working capital requirements as used in Part III of the First Schedule to the Income Tax Ordinance and hence it is to be excluded from the total income for levy of surcharge. The department was aggrieved and consequently the question, whether the Tribunal was justified in holding the same has been referred to us for determination.

It has been pointed out that the question referred to us has already been decided by a Division Bench of this Court in the case of Commissioner of Inc-me Tax v. Pakistan Tobacco Co. Ltd. 1988 PTD 66. The following observations of the Division Bench which appear at para. 14 of the judgment arc reproduced below:---

"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. 1t 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."

Since the question has already been answered by a Division Bench of this Court, we answer the question accordingly, that is to say, in the affirmative.

M.B.A./C-264/K Reference answered.