Income Tax Ordinance (XXXI of 1979)---

----First Sched., Part III---Provision/liability, for tax falls within the purview of the expression "for meeting working capital requirements" as used in Part III of the First Sched. of 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.

Sheikh Haider for Applicant.

Date of hearing: 16th December, 1991.

JUDGMENT

MAMOON KAZI, J.--In this case the learned Income Tax Appellate Tribunal while disposing of the second appeal held that the tax liability/tax payable by the assessee could be considered as retained income for purposes of the levy of surcharge. The department was not satisfied with this decision, and, therefore, it requested the Tribunal to refer the following question to this Court for determination:

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

It has been pointed out that the question referred to us is already covered by a decision of another Division Bench of this Court in the case of Commissioner of Income Tax v. Pakistan Tobacco Co. Ltd. 1988 PTD 66. The relevant observations of the Division Bench which appear at page 81 at para. 14 of the Report are as follows:--

"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 arid 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 arc 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 decided by another Division Bench, we also decide the question accordingly, that is to say, in the affirmative.

M.B.A./C-267/K Reference answered.