(a) Income Tax Ordinance (XXX1 of 1979)--

----S.10 & First Schedule Part III, Para A; Finance Act (XXX of 1977), S.4 & First Schedule [as amended by Ordinance II of 1978]---Levy of surcharge-- Expression "income as has been retained for meeting working capital requirements"---Connotation---"Current liabilities," meaning---Whether provision/liability for tax is an income as has been retained for meeting working capital requirements---Held, the amount of provision/liability for tax fell within the purview of expression "income as has been retained for meeting working capital requirements" and as such was to be excluded from total income for levy of surcharge.

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

(b) Income Tax---

----"Working capital"---Working capital is the difference between current assets and current liabilities.

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

(c) Income Tax---

---'Current liabilities"---Expression "current liabilities" will include a liability to pay, inter alia, advance tax, and provisions for taxation.

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

Nasrullah Awan for Applicant.

Sirajul Haque for Respondent.

Date of hearing: 29th January, 1992.

JUDGMENT

MAMOON KAZI, J.---The Income Tax Appellate Tribunal while disposing of a second appeal held that the amount of provision/liability for tax falls within the purview of expression "income as has been retained for meeting working capital requirement" as used in Part III of the Schedule to Finance Act, 1977 as amended and hence it was to be excluded from total income for levy of surcharge. The department was, however, aggrieved by the above findings and therefore 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 for tax falls within the purview of 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 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 expression "income as has been retained for meeting working capital requirements" as used in Part III of the first Schedule to Finance Ordinance and hence it was to be excluded from 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 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, and section 10 of it, and hence it was to be excluded from total income for levy of surcharge?"

We find that the questions referred to this Court have already been answered by a Division Bench of this Court in the case of Commissioner of Income Tax v. The Pakistan Tobacco Co. Ltd. (1988 PTD 66). Reference may be made to the following observations made by the Division Bench:---

"14. From the above referred definitions 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 operate 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 the definition of the words "working capital", namely, that it 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. Aspointed out hereinabove, Mr. Shaikh Haider, Advocate for the applicant department has put too much emphasis on the factum that at least the amounts of advance tax paid under section 18-A before the closing of an accounting year cannot be treated as working capital requirement in terms of above proviso relating to 10 per cent surcharge, as it is no longer in the coffer of the company. The question, whether a particular amount is available or is not available depends on the treatment of that amount in the books of account. If any payment is shown on account, technically and in accounting parlance it remains vested in a company. The provisions of sections 21, 22, 22-A, 23 and 23-B clearly indicate that any amount of tax payable under section 18-A remains on account payment till the time the assessment order for the relevant year is passed by the Income Tax Officer and the tax liability is adjusted partly or wholly against the amount of income tax paid in advance. In this behalf reference may be made to subsections (5) and (5-A), which provide for payment of interest by the Government to an assessee and subsections (7) and (8) of section 18A, which empower the Income Tax Officer to levy additional tax at the rate of 2% per mensum on the short amount of income tax not paid. It may also be pointed out that subsection (9a) of section 18-A gives an option to an assessee, who does not pay on the specified date any instalment of tax which he is required to pay under subsection (1) to file an estimate or revised estimate of the tax payable by him. This provision also reinforces the conclusion that any amount payable under section 18-A is merely on account payment and for the purpose of account this is to be shown as such."

Since the question has already been decided by Division Bench, we also accordingly answer the question in the affirmative.

M.BA./C-278/K Question answered in affirmative.