PAKISTAN SERVICES LIMITED VS COMMISSIONER OF INCOME-TAX (REVISION, KARACHI
1993 P T D 1047
[Supreme Court of Pakistan]
Present: Muhammad Afzal Zullah, C.J, Nasim Hassan Shah and Shafiur Rehman, JJ
Civil Appeal No. 60-K of 1987
PAKISTAN SERVICES LIMITED
Versus
COMMISSIONER OF INCOME TAX (REVISION), KARACHI
(On appeal from the judgment of High Court of Sindh at Karachi dated 24-4-1986 passed to Constitution Petition No. 1167 of 1979).
Civil Appeal No. 52'3-K of 1987
THE COMMISSIONER OF INCOME-TAX, CENTRAL ZONE `B', KARACHI
Versus
Messrs ALI MUHAMMAD H.K. DADA
(On appeal from the judgment of High Court of Sindh at Karachi dated 12-10-1987 passed in I.T.C. No. 99/1979).
Civil Anneals Nos. 573-K 247-K to 252-K and 254-K to 258-K of 1990
COMMISSIONER OF INCOME TAX
Versus
Messrs UNITED BANK LIMITED and 11 others
(On appeal from the judgment of High Court of Sindh at Karachi dated 4-11-1987 passed in I.T.Rs. Nos.97/1979, 19/1979, 6/1980, 15/1981, 68/1982, 11/1983, 22/1983, 24/1981, 45/1982, 46/1982, 23/179 and 18/1979 respectively).
Civil Appeal No.253-K of 1990
THE COMMISSIONER OF INCOME TAX
Versus
Messrs LEVER BROTHERS PAKISTAN LIMITED
(On appeal from the judgment of High Court of Sindh at Karachi dated 8-12-1987 passed in I.T.R. No. 22 of 1981).
Civil Appeal No. 568-K of 1990
THE COMMISSIONER OF INCOME-TAX
Versus
JENSON & NICHOLSON OF PAKISTAN LTD. (NOW CALLED BERGER PAINTS)
(On appeal from the judgment of High Court of Sindh at Karachi dated 20-4-1988 passed in I.T.R. No.69 of 1984)
Civil Appeal No. 710-K of 1990
THE COMMISSIONER OF INCOME TAX
Versus
PAKISTAN STATE OIL CO. LTD. (Previously known ESSO Eastern Inc.)
(On appeal from the judgment of High Court of Sindh at Karachi dated 26-9-1988 passed in I.T.R. No. 103 of 1982).
Civil A1212eal No. 711-K of 1990
THE COMMISSIONER OF INCOME TAX
Versus
Messrs PAKISTAN TOBACCO COMPANY LTD.
(On appeal from the judgment of High Court of Sindh at Karachi dated 30-11-1988 passed in I.T.R. No.23/1983).
Civil Appeal No. 613-K of 1990
THE COMMISSIONER OF INCOME TAX
Versus
Messrs UNITED BANK LIMITED
(On appeal from the judgment of High Court of Sindh at Karachi dated 15-8-1989 passed in I.T.R. No.96 of 1979).
Civil Appeal No. 225-K of 1991
THE COMMISSIONER OF INCOME TAX
Versus
Messrs GLAXO LABORATORIES (PAKISTAN) LIMITED
(On appeal from the judgment of High Court of Sindh at Karachi dated 2-5-1991 passed in I.T.R. No. 111 of 1984).
Civil Appeals Nos. 60-K, 523-K of 1987, 573-K, 247-K to 252-K, 254-K to 258-K, 253-K, 568-K, 613-K, 710-K, 711-K of 1990 and 225-K of 1991, decided on 04/04/1993.
(a) Income-tax Act (XI of 1922)---
----S. 10(2)(vii)---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was grated to examine the question whether the High Court had not erred in taking too restricted meaning of the word "discarded" used in S.10(2)(vii) of the Income-tax Act, 1922 so as to exclude abandoned property and thereby to deprive the assessee of the trading losses suffered on account of it.
(b) Income-tax Act (XI of 1922)---
----S. 10(2)(vii)---Word "discarded" as used in S 10(2)(vii) of the Act--?Connotation.
No doubt the extended meaning of "discard" given in the dictionary includes "abandonment". However, all abandonment of property cannot and does not amount to discarding of the property. The word "discard" entails, a choice, a selection, a voluntary act of leaving behind, causing of, leaving or abandoning. Without such a choice, selection or violation, the word "discarded" would be inappropriate to use. For example, if one was made to forcibly leave his house that would not amount to discarding the house.
(c) Income-tax Act (X of 1922)---
----S. 10(2)(vii)---Provision of S.10(2)(vii) of the Act was applicable to losses incurred in East Pakistan (now Bangladesh) on account of the compulsory acquisition (without payment of compensation) of the assets by Bangladesh Authorities which also stood/recognised by the Government of Pakistan.
The acquisition of the properties of the assessee by Bangladesh Authorities without compensation will be taken to be compulsory and by the competent authority, and the cause of action for claiming relief in respect of such properties will arise not retroactively from the date Bangladesh declared independence or the law was promulgated by the Bangladesh Authorities but from the date it was recognized by the Government of Pakistan. Provisions of section 10(2)(vii) of the Income-tax Act, 1922 would be applicable notwithstanding the technical objections that one of the conditions of the proviso namely, that the written down value was not scored off in the books of account or that the assessment year relevant for claiming concession was 1972-73, the independence of Bangladesh having been declared in 1971.
Section ,10(2)(vii) of the Income-tax Act, 1922, was therefore applicable to losses incurred in East Pakistan (now Bangladesh) on account of the compulsory acquisition of the assets by a competent authority without payment of any compensation which stood recognized by the Government of Pakistan.
CIT v. National Bank Limited (S.C. Ind.) (1965) 55 I.T.R.; (1964) 54 ITR (Sh. N.) 14; PLD 1963 Kar. 48; PLD 1966 SC 510; Australasia Bank Ltd.'s case PLD 1962 Lah. 779; Chitnvis's case AIR 1932 PC 178; 59 IA 290; M/s. Avery Scales Ltd., Karachi v. The Income Tax Officer, Company Circle VII, Karachi, Income Tax Appeal No.287-KB of 1975-76; M/s. United Liner Agencies of Pakistan Ltd., Karachi v. The Income Tax Officer, Company Circle-IV, Karachi ITA No.4593-KB of 1973-74; M/s. Glaxo Laboratories (Pakistan) Limited, Karachi v. I.T.O. I.TA. No. 273/KB of 1978-79; Halsbury's Laws of England, Fourth Edn., Vol. 18, para. 1433; Oppenheim's International Law (Vol. I, Art. 75; Aksionairnoye Obschestvo Dlia Mechanicheskoyi Obrabotky Diereva v. James Sagor and Company (1921) 3-KB 532; United States of America v. Morgan Belmont and Eleanor R. Belmont 301 U,S.324=81 L.ed 113; United States of America v. Louis H. Pink 315 US 203 = 86 L.ed. 796; Highway Petroleum Co. v. CIT PLD 1977 Lah. 797; Highway Petroleum Co. v. CIT PLD 1972 Lah. 79; Lever Brothers of Pakistan Limited v. Commissioner, Income Tax, Central Zone `A', Karachi 1988 PTD 195; Broom's Legal Maxims; The Generous, 2 Dod. 321 and Commissioner of Income Tax, Bombay City-II v. London Hotel 1968 ITR 62 ref.
(d) Words and phrases---
----"Discarded"---Meaning.
(e) Maxim---
----- Lex non cogit ad impossibilia"---Parameters within which maxim operates recorded.
Broom's Legal Maxims ref.
(f) International law---
----Recognition of Bangladesh as an independent State by Pakistan--?Implications.
Halsbury's Laws of England, Fourth Edn., Vol. 18, para. 1433 and Oppenheim's International Law, Vol. 1, Art. 75 ref.
Fakhruddin G. Ebrahim, Senior Advocate, Abdul Hafeez Lakho, Advocate and A. Aziz Dastgir, Advocate-on-Record for Appellant (in CA. No.60-K of 1987).
Shaik Haider, Advocate, S.M. Abbas, Advocate-on-Record for Respondent (in CA. No.60-K of 1987) and Appellant (in CAs. Nos.523-K, 247-K to 258-K, 568-K, 710-K, 711-K of 1990 and 225-K of 1991).
Mrs. Rashida Patel, Advocate/Advocate-on-Record for Appellant (in CA.Nos. 573-K and 613-K of 1990). ??
Sirajul Haq, Advocate, M.I. Memon, Advocate-on-Record for Respondent (in CA. No.573-K of 1990).
Sirajul Haq, Advocate and M.C. Motiani, Advocate-on-Record for Respondent (in CA. No.613-K of 1990),
Fateh W. Vellani, Advocate, Mrs. Majida Razvi, Advocate-on-Record for Respondent (in CA. No.225-K of 1991).
Nizam Ahmed, Advocate-on-Record (absent), KA. Wahab, AA. Dastgir, Faizanul Haq, M.S. Ghaury, M.C. Motiani, Advocates-on-Record for Respondent (in other Appeals, except in CAs. Nos.255-K and 256-K of 1990).
Respondents: Ex parte: (in CAs. Nos. 255-K and 256-K of 1990).
Dates of hearing: 20th and 21st April, 1992 (in CA. 60-K of 1987 and 613-K of 1990/in all other Appeals).
JUDGMENT
SHAFIUR RAHMAN, J.---Leave to appeal was granted in Civil Appeal No.60-K/1987 to the assessee of Income-tax to examine the question whether the High Court had not erred in taking too restricted meaning of the word "discarded" used in section 10 (2) (vii) of the Income-tax Act, 1922 so as to exclude abandoned property and thereby to deprive the assessee of the trading losses suffered on account of it. This question was to be examined alongwith others arising in the case.
The question on which leave to appeal was granted to the assessee (in Civil Appeal No.60-K 1987) is also involved in the following appeals filed by the Commissioner of Income-Tax:--
(1) Civil Appeal No. 523-K of 1987, arising out of judgment of High Court dated 12-10-1987;
(2) Civil Appeals Nos. 573-K, 247-K to 252-K and 254-K to 258-K of 1990, arising out of judgment dated 4-11-1987;
(3) Civil Appeal No. 253-K of 1990, arising out of judgment dated 8-12-1987;
(4) Civil Appeal No. 568-K of 1990, arising out of judgment dated 20-4-1988;
(5) Civil Appeal No. 710-K of 1990, arising out of judgment dated 26-9-1988;
(6) Civil Appeal No. 711-K of 1990, arising out of judgment dated 30-11-1988;
(7) Civil Appeal No. 613-K of 1990, arising out of judgment dated 15-8-1989;
(8) Civil Appeal No. 225-K of 1991, arising out of judgment dated 2-5-1991.
In the first instance, we will deal with Civil Appeal No.60-K of 1987 filed by the assessee, arising out of judgment, dated 24-4-1986, and then the others mentioned above filed by the Commissioner of Income Tax.
2. The assessee/appellant in CA. No. 60-K/87 is a public company limited by shares and owned Intercontinental Hotels throughout Pakistan including one in Dacca in East Pakistan in the year 1971. As a result of the disturbances followed by war in December, 1971, the appellant was forced to discard or abandon its Dacca Intercontinental Hotel which was subsequently acquired under the Bangladesh Abandoned Property Control, Management and Disposal Order, 1972 (President's Order No.16 of 1972 -- hereinafter referred to as the P.O. No. 16 of 1972) on the 28th of February, 1972 by the Bangladesh Government. The written down value of this Hotel including the buildings, machinery, plant and furniture was at the relevant time Rs.4,33,44,772. In the accounting year 1973 and the Income-tax year 1974-75, the appellant claimed a trading loss of this amount from its profits and gains under section 10 (2) (vii) of the Income-tax Act. The Income-tax Officer by a very short order rejected this claim observing as hereunder:--
"This is not admissible in law and the claim is disallowed."
3. An appeal was taken to the Appellate Assistant Commissioner who also rejected the claim observing as hereunder:--
"Having considered the facts and circumstances of the case, I am of the opinion that the disallowance has properly been made by the Assessing Officer and this view gets support from several decisions of the learned Income-tax Appellate Tribunal. The issue stands decided elaborately by the Tribunal vide I.TA. No. 4593/KB/1973-74, dated the 30th June, 1976, and I.TA. No. 662/KB/74-75, dated 1-10-1976. Following the decision of the learned Income-tax Appellate Tribunal, the disallowance made by the Assessing Officer is upheld in respect of the loss of fixed assets in East Pakistan:"
4. A revision under section 33A (1) was thereafter filed which too failed. The Revising Authority/Commissioner of Income-Tax (Revision) held as hereunder:--
"I have considered the merits of the case and hold that the loss in question is a capital loss."
5. The appellant thereafter filed a Constitution Petition in the High Court. The two grounds taken up in the Constitution Petition were that the fixed assets like the building, the machinery, the plant and the furniture stood discarded or abandoned on account of the circumstances beyond the control of the assessee and also that it was compulsorily acquired by the President of Bangladesh without payment of any compensation and both these events entitled the assessee to the benefit of section 10 (2) (vii) of the Income-tax Act.
It appears that in the arguments only one ground was pressed before the High Court and that was of discarding of the fixed assets on account of circumstances beyond the control of the assessee. This was examined by the High Court and the plea was rejected observing .as hereunder:--
"The abandonment of hotel and assets was therefore, clearly due to reason over which the petitioner had no control whatsoever. Such abandonment of assets by the petitioner, cannot be construed as their discarding and as such the same cannot fall within the purview of clause (vii) of section 19 (2) of the Income Tax Act so as to entitle the petitioner to claim deduction as aforesaid. It is, therefore, clear that the petitioner did not discard its asset in Dacca, within the meaning of clause (vii) of section 10 (2) and as such it is not entitled to claim any deductions thereunder."
The writ petition was consequently dismissed.
6. Mr. Fakhruddin G. Ebrahim, Senior Advocate, the learned counsel for the appellant in an attempt to make out a clear case of concession under clause (vii) of section 10 (2) of the Income Tax Act referred to the following decisions of various Courts and Tribunals:--
(i)???????? C.I.T. v. National Bank Limited (S.C.) India (1965) 55 I.T.R. wherein loss on account of dacoity was allowed under clause (vii) of section 10 (2).
(ii)??????? (1964) 54 I.T.R. (Sh. N.) 14, where. loss on account of war was allowed under this provision of law.
(iii)?????? PLD 1963 Karachi 48 upheld by the Supreme Court in PLD 1966 SC 510 where loss on account of robbery of cash was allowed under this provision of law.
(iv)?????? PLD 1962 Lahore 779 (Case of Australia Bank Ltd.).
(v)??????? Case of Chitnvis (AIR 1932 Privy Council 178).
(vi)?????? 59 Indian Appeals 290.
7. The learned counsel for the appellant has also filed copies of certain decisions of the Tribunal where a contrary view has been taken on the same subject in the income-tax hierarchy. For example, in Income Tax Appeal No.287/KB/1975-76 (M/s. Avery Scales Ltd., Karachi v. The Income Tax Officer, Company Circle-VII, Karachi), the Tribunal came to the following conclusion:--
"A reading of the above provisions shows that this allowance is admissible even in respect of the assets which are discarded and "discard" in the dictionary meaning includes "abandonment" as well therefore, the acquisition of the assets by a competent authority is not the sole criterion for the application of this provision. The assessee? appellant had, in its letter dated the 5th November 1974 clearly intimated to, the Income Tax Officer in para. (5) thereof that the business in East Pakistan had remained abandoned. In these circumstances the assessee-appellant's claim would very well be covered by this provision. Therefore, there is no reason why the appellant assessee's claim should have been thrown out summarily and in the manner the officers below had done. The Income Tax Officer would re-examine the position on the basis of the written down value and allow the claim now."
In another case I.TA. No. 4593/KB of 1973-74 (M/s. United Liner Agencies of Pakistan Ltd., Karachi v. The Income Tax Officer, Company Circle-IV, Karachi), the Tribunal has interpreted the word "discard" in the following manner not beneficial to the assessee.--
"The word `discard' means a voluntary abandoment. It shows a volition and is not the result of an act of God or of a usurper. In this case admittedly no volition was exercised by the assessee. Therefore section 10(2)(vii) could not be pressed into service. The appellant did not press ground No.2,"
In yet another appeal, I.T.A. No. 273/KB of 1978-79 M/s. Glaxo Laboratories (Pakistan) Limited, Karachi v. The I.T.O., the view taken by the Tribunal on the same question was as hereunder:--
"Therefore 'the recognition of Bangladesh Government by the Government of Pakistan had turned an illegal authority into a juridical and legal authority and the date of recognition would determine the date of acquisition by a competent authority. We, therefore, cannot escape from the conclusion that the property did stand acquired by a competent authority on 22-2-1974:'
8. The learned counsel for the appellant has further contended that having accepted that the word "discard" has also the meaning of "abandonment", the High Court could not have given a restricted interpretation to the provision of law with a view to exclude the meaning of "abandonment" from the word "discard".
9. No doubt the extended meaning of "discard" given in the dictionary includes "abandonment,". However, all abandonment of property cannot and does not amount to discarding of the property. The word "discard" entails a choice, a selection a voluntary act of leaving behind, causing of, leaving or Abandoning, Without such a choice, selection or volition, the word "discarded" would be in-appropriate to use. For example, if one was made to forcibly leave his house that would not amount to discarding the house.
10. The learned counsel for the appellant, however, is on a stronger footing in contending that taking a general view of what happened in East Pakistan and Bangladesh in respect of this or such properties it cannot but be said to be compulsory acquisition of the property by a competent authority. After the Bangladesh unilaterally declared its independence of Pakistan, there followed in 1972 P.O. 16 of 1972. By this such properties were compulsorily acquired by the Government of Bangladesh. This was followed by recognition of Bangladesh as an independent country by the Government of Pakistan on 4-5-1974 vide Constitution (First Amendment) Act, 1974 (Act XXXIII of 1974).
11. The High Court of Sindh while dealing with the very same question in various Income Tax References, as distinguished from a Constitution Petition, held by its judgments dated 12-10-1987, 4-11-1987, 8-12-1987, 20-4-1988, 26-9-1988, 30-11-1988, 15-8-1989 and 2-5-1991 that such acquisition of assets amounted to compulsory acquisition by the competent authority and the loss was admissible under section 10(2)(vii) of the Income Tax Act. It is these orders which have led to other appeals which are under consideration alongwith the appeal arising out of the Constitution Petition i.e., Civil Appeal No.60-K/1987.
12. The President of Peoples Republic of Bangladesh promulgated on the 28th February, 1972, the Bangladesh Abandoned Property (Control, Management and Disposal) Order, 1972 (President's Order No.16 of 1972). `Abandoned property' was defined in a manner to include "any property owned by any person who is a citizen of a State which at any time after the 25th day of March, 1971, was at war with or engaged in military operations against the Peoples Republic of Bangladesh". It also included "any property owned by any person who is not present in Bangladesh" and the Explanation extended the presence in Bangladesh to "any body of persons or company constituted or incorporated in the territory or under the laws of a State which at any time after the 25th day of March, 1971, was at war with or engaged in military operations against the People's Republic of Bangladesh". `Company' was defined to include "a banking company and insurance company". `Property' was defined to include "property of any kind, movable or immovable" and inclusive of "any right or interest in such property and any debt or actionable claim, any security or negotiable instrument, any right under a contract and any industrial or commercial undertaking". `Security' included "share, scrip, stock, bond, debenture, debenture stock or other marketable security of a like nature in or of anybody corporate and Government security". By its Article 4, P.O. No. 16 of 1972 provided that "on the commencement of this Order, all abandoned properties in Bangladesh shall vest in the Government and shall be administered, controlled, managed and disposed of, by transfer or otherwise, in accordance with the provisions of this Order".
This Order (P.O. No. 16 of 1972) had the effect of compulsory acquisition of the assets of the assesses-companies -- whatever its form or nature. The subsequent recognition of the Bangladesh State by the Government of Pakistan in 1974 had the effect of retrospectively recognizing it from the date of its creation and on that score, making the acquisition of such properties by authority competent and recognized so by the Government of Pakistan to acquire it.
13. The fact of recognition of Bangladesh as an independent State has more than one implication. The general law on the subject as contained in Corpus Juris Secundum is as hereunder:----
"Recognition is a political act which, when accorded by the authorized political department, will be accepted as conclusive by the Courts: Recognition as a de facto Government is sufficient ... ......Recognition is retrospective, dating from the original' assertion of sovereignty, so as to validate the acts of the recognized Government. In this respect it is all one whether the foreign Government has been recognized as a Government de jure or de facto. Recognition by the United States Government of a foreign Government operates to validate from the beginning the decrees of the foreign Government confiscating and nationalizing property, including property within the United States where such property is embraced by the foreign decree. In such case the national policy is paramount and overrides any contrary local public policy of the individual States, and the foreign decrees will be fully recognized and enforced as to local assets, at least where no local creditors have an interest."
14. The British law on the subject is found in Volume 18 of Halsbury's Laws of England (Fourth Edition) in paragraph 1433 as hereunder:--
"1433. Legal effects of recognition.---The recognition of a foreign Government by the Crown reverses the consequences of non ?recognition. A recognised Government may sue, and may claim sovereign immunity if sued, in an English Court. Acts of a recognised Government are generally recognised as valid and are given effect in accordance with the rules of the conflict of laws. Thus, contracts made with and by a foreign recognised Government are valid and enforceable, and legislative and executive acts such as decrees affecting property within the State whose territory is administered by a recognised Government and legislation winding up or affecting a company incorporated there will be given effect in the English Courts, so long as they conform to international law and public policy. A recognised Government may claim the public property of the State and the records and State archives deposited in England by a previous Government. Further, the acts of a recognised Government will not be treated as the acts of a usurped authority within the meaning of a general insurance policy, even though the Government has some to power by revolutionary means:' -
15. The International law on the subject of recognition of a State is found in Article 75 of Oppenheim's International Law (Volume I) as hereunder:--
"Among the more important consequences which flow from the recognition of a new Government or State are these: (1) it thereby acquires the capacity to enter into diplomatic relations with other States and to make treaties with them; (2) within limitations which are far from being clear, former treaties (if any) concluded between the two States, assuming it to be an old State and not a newly-born one, are automatically revived and come into force: (3) it thereby acquires the right, which, at any rate according to English law, it did not previously possess, of suing in the Courts of law of the recognising State; (4) it thereby acquires for itself and its property immunity from the jurisdiction of the Courts of law of the State recognising it and the ancillary rights which are discussed later -- an immunity which, according to English law at any rate, it does not enjoy before recognition. (5) It also becomes entitled to demand and receive possession of property situate within the jurisdiction of a recognising State, which formerly belonged to the preceding Government at the time of its supersession. (6) Recognition being retroactive and dating back to the moment at which the newly-recognised Government established itself in power, its effect is to preclude the Courts of law of the recognising State from questioning the legality or validity of She acts both legislative and executive, past and future, of that Government; it therefore validates, so far as concerns those Courts of law, certain transfers of property and other transactions which before recognition they would have treated as invalid."
16.?????? The particular argument that when P.O. No.16 of 1972 was passed, the Bangladesh Government was not recognised and the retrospective effect of recognition cannot make competent something which was ab initio incompetent was taken note of in Aksionairnoye Obschestvo Dlia Mechanicheskoyi Obrabotky Diereva v. James Sagor and Company (1921) 3 K.B. 532 at page 549 as hereunder:--
"But then it is said that at the time when the legislative or executive acts were done the persons assuming to act as the Government of Russia had not been recognized by this country, and those acts therefore are not entitled to the respect due to the acts of an independent sovereign State. This contention raises the question whether recognition is retroactive to any and what extent. Assuming that the acts in question are those of the Government subsequently recognized I should have thought that in principle recognition would be retroactive. at any rate to such date as our Government accept as 1aw that by which 'the Government in question in fact established its authority. It appears from the letter of the Foreign Office dated April 22, 1921, that that date is anterior to any of the events material to the present case. "Recognition is the act through which it becomes apparent that an old State is ready to deal with a new state as an international person and a member of the family of nations". If this is so then provided the act in question was an act of the State so recognized it must, in my opinion, be entitled to the same respect as the act of a sovereign State; whether done before or after recognition."
17. his subject has been dealt with in two American cases also. In United States of America v. Morgan Belmont and Eleanor R. Belmont (301 U.S. 324=81 Led. 113) it was held that judicial notice can be taken of the recognition of a foreign Government, and the effect of recognition is to validate all acts of such Government from the commencement of its existence. In the other case, United States of America v. Louis H. Pink (315 US 203=86 L ed 796) it was held that recognition of a foreign Government was a political question and judicial notice of it can be taken and the laws of that country so recognised given effect to.
18. The effect of the law so far discussed is that the acquisition of the properties of the assessee will be taken to be compulsory and by the competent authority, and the cause of action for claiming relief in respect of such properties will arise not retroactively from the date Bangladesh declared independence or the P.O. No.16 of 1972 was promulgated but from the date it seas recognized by the Government of Pakistan. On that view of the matter, the High Court judgments on this point would appear to be correct notwithstanding the technical objections that one of the conditions of the proviso namely, that the written down value was not scored off in the books of account or that the assessment year relevant for claiming concession was 1972-73, the independence of Bangladesh having been declared in 1971. With these general observations it has become necessary to examine the facts of each of the other appeals individually.
CA. No. 523 K/90 CIT v M/s Ali Muhammad H.K. Dada.
19. For the assessment year 1972-73 (the year ending on 30th March, 1972) the respondent-assessee claimed capital loss in the shares and bad debts written off in respect of the nationalized companies incorporated in Burma and East Pakistan. These were not allowed by the Income-Tax Officer and by the Appellate Assistant Commissioner. The Tribunal, however, allowed these losses by an order dated 9-2-1976 as hereunder-
"In our opinion the appellant was in possession of sufficient evidence to entitle him to claim these losses of capital and we do not find any justification for the Income-tax Officer's observations that the appellant could not produce any evidence. After all what other evidence could be produced for the assets lost in an alien country in the circumstances in which the appellant is placed. The action of the Income-tax officer at the same time is not consistent with the action of his counterpart i.e. the Wealth Tax Officer who has accepted this loss and we shall accordingly vacate the Income-tax Officer's order in this behalf and direct him to scrutinize the evidence that has been discussed above and allow the loss that the appellant is able to establish in Burma.
The appellant also claimed a loss of Rs.1,220 being the cost of shares of the companies registered in East Pakistan. The Income-tax Officer disallowed the same on the simple plea that these were dormant assets and could not be allowed in view of the instructions contained in the Central Board of Revenue's Circular No.11 dated 28-11-1972. The appellant's plea is that the Central Board of Revenue's circular, referred to above by the Income-tax Officer does not contain any such instructions. It is stated that no value has to be assigned to these shares even for the Wealth tax purposes. So far as the assessee is concerned, he has lost these assets. We agree with the appellant's contention that these assets have also been lost and, therefore, these should be treated as capital case."
The Tribunal refused to refer the question of law arising therein whereupon the Commissioner of Income Tax sought directly reference of the following question of law:--
"Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that a sum of Rs.7,396 being cost of shares of a company registered in East Pakistan (now Bangladesh) should be treated as capital loss and be allowed accordingly?"
The High Court, as in other cases, allowed the claim agreeing with the Tribunal's decision.
CA. No. 573-K/1990
CIT v. M /s. United Bank Limited.
20. For the assessment year 1973-74 the assessee, a Banking Company claimed depreciation allowance under section 10 (2) of the Income Tax Act on assets lying in East Pakistan, It was denied to it by the Income-Tax Officer as well as by the Appellate Assistant Commissioner. The Income Tax Appellate Tribunal also upheld that decision observing as hereunder:--
"The appellant pressed grounds Nos.4 and 5 only. The assessee claimed depreciation allowance under section 10 (2) on assets lying in East Pakistan, without declaring any income or loss from its Branches in East Pakistan. The accounting year of the assessee was calendar year 1972 for the assessment year 1973-74. As no income from business was declared by the appellant or considered by the department the question of allowing depreciation on the assets lying in East Pakistan could not arise."
21. On an application by the assessee to refer the question of law, the Tribunal declined it treating the matter to be time-barred whereupon an application was filed directly in the High Court. In the statement of the case the only point of law formulated was as hereunder:--
"Whether on the facts and in the circumstances of the case the Tribunal was justified in not allowing the loss under section 10(2)(vii) of the Income Tax Act in respect of the assessee's business assets lying in East Pakistan?"
The High Court decided the question of law in assesee' so favour.
C. A No.247-K/1990.
CIT v M/s Asbestos Cement Industries Ltd.:
22. For the assessment year 1973-74 (year ending 30-6-1973) the respondent-assessee claimed Rs.49,35,259 for loss of fixed assets in East Pakistan under section 10(2)(vii) of the Income Tax Act. The Income Tax Officer disallowed it. So did the Appellate Assistant Commissioner. The Appellate Tribunal also upheld this disallowance. Nevertheless, the Tribunal referred the following questions of law to the High Court:
"(i)??????? On the facts and in the circumstances of the case was the Tribunal right in holding that the Government of Bangladesh was not a `Competent Authority' within the meaning of section 10(2)(vii) of the Income Tax Act until its recognition by the Government of Pakistan on 23rd February, 1974?
(ii)??????? Whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the Income Tax Officer in regard to disallowance of loss of Rs.49,35,259 claimed by assessee under section 10(2)(vii) of the Income Tax Act?"
C.A. No. 248-KL90.
CIT v. M/s. Pakistan Petroleum Ltd.:
23. For the assessment year 1972-73 ending 31-12-1971 the assessee revised its return to claim the loss arising on assets of the assessee in East Pakistan. The Income Tax Officer by his order, dated 15-4-1975 disallowed it on the ground that assets in question were not written off in the books of the assessee in the accounting year under consideration. The Appellate Assistant Commissioner upheld that order. The Income Tax Appellate Tribunal rejected the claim on the ground that it was not a case of discarding of the assets. However, the Tribunal referred the following questions of law to the High Court:--
"(i) Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in determining that the loss of fixed assets in the former East Pakistan was not covered by section 10(2)(vii) of the Income Tax Act?
???????????
(ii) Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in determining that in the return filed the applicant had not claimed the loss of fixed assets in the former East Pakistan when in fact this loss was claimed in the revised return of income filed prior, to the completion of the assessment?"
The High Court decided it in favour of the assessee.
C.A. No. 249-K/90.
CIT v. M/s. Pakistan Radio House:
24. For the assessment year 1972-73 (year ending 30-6-1973) a revised return was filed claiming allowance under section 10(2)(vii) of the Income Tax Act of loss of assets in East Pakistan. This was denied by- the Income Tax Officer by order dated 30-4-1975 for reason as hereunder:--
"This claim of assessee is not admissible as it does not attract section 10(2)(vii). Building was not acquired by a competent authority under any law and secondly such claim is not allowed as per C.B.R.'s open Circular No.11 of 1972 dated 28-11-1972."
25. The Appellate Assistant Commissioner and the Income Tax Appellate Tribunal upheld this order. However, on the request of the assessee the following question of law was referred to the High Court:--
"Whether in the facts and circumstances of the case, the Appellate Tribunal was right in holding that the applicant was not entitled to claim under section 10(2)(vii) of the Income-tax Act, 1922 as a loss written down value of a building left in East Pakistan to Rs.1,61,076?"
The High Court decided it in favour of the assessee.
CA. No.250-K/90.
CIT v. M/s. Kohinoor Chemical Company Ltd.:
26. For the assessment year 1972-73 (year ending 31-3-1972) on reconsideration the Income Tax Officer disallowed assessee's claim of East Pakistan loss amounting to Rs.76,57;060.The Appellate Assistant Commissioner upheld this order and so did the Tribunal. However, on the request of assessee the. Tribunal referred-the following question of law to the High Court:--
"Whether on the facts and in the circumstances of case, the applicant's claim of Rs.76,57,060 related to the loss of fixed assets in East Pakistan was allowable under section 10(2)(vii) of the Income-tax Act, 1922?"
Me High Court decided it in favour of the assessee.
CA No. 251-K/90
C'IT v M/s. Lipton (Pakistan) Ltd.:
27. For the assessment year 1974-75 (year ending 31.-12-1974) the assessee claimed loss of fixed assets under section 10(2)(vii) of the Income Tax Act amounting to Rs.20,30,708 in East Pakistan. It was treated as capital loss but not under section 10 (2) (vii) of the Income-Tax Act. The Appellate Assistant Commissioner upheld this order. The Income Tax Appellate Tribunal, however, remanded the case observing as hereunder:--
"This Tribunal's decisions dated 16-1-1976 arid 1-10-1976 maintain the view that the loss of fixed assets in East Pakistan is to be allowed under section 10 (2) (vii) to the extent of their correct written down value, subject to the limits contained in the fourth and fifth provisos of the same subsection. A different view has, of course, been expressed and different meaning placed on the word `discard' in decision dated 10-6-1976 yet the majority view of the members of the Tribunal, on the principle enunciated by Mr. Justice Afzal Zullah (now Judge of the SCP) in Highway Petroleum Co. v. CIT PLD 1977 Lahore 797 persuades us to stick to the opinion that the loss of fixed assets is allowable under section 10 (2) (vii) of the Income Tax Act. However, the facts in the present case are not fully evident from the assessment as framed on 27-2-1976, because the disallowance of Rs.15,71,560 has not been discussed at all and what the assessing officer disallowed was Rs.20,30,708. We would, therefore VACATE the order by the learned AAC and set aside the assessment quo-ad-hoc directing the assessing officer to re-examine the position and consider the loss on the basis of WDV and in the light of the direction hereinabove.?
Against this the Commissioner of Income Tax successfully sought reference to High Court on the following question of law:--
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the loss of fixed assets in the former East Pakistan was covered by section 10 (2) (vii) of the repealed Income-tax Act'
The High Court decided it in favour of the assessee.
CA. No. 252-K/90
CIT v M/s. Lucas Services (Pakistan) Ltd.:
28. For the assessment year 1973-74 (year ending 31-3-T972), the respondent/assessee claimed loss of assets of Rs.1,20,176 which was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner. It was, however, allowed by the Income Tax Appellate Tribunal by reference to its earlier decisions as hereunder:--
"This Tribunal's decisions dated 16-1-1976 and 1-10-1976, therefore; maintain the view that the loss of fixed assets in East Pakistan is to be allowed under section 10 (2) (vii) to the extent of their correct written down value subject to the limits contained in the Fourth and Fifth Provisos of the same subsection. A different view has of course been expressed and different meaning placed on the word `discard' in decision dated 30-6-1976. However the majority view of the Members of the Tribunal on the principle enunciated by Mr. Justice Afzal Zullah (now Judge of the SCP) in Highway Petroleum Co. v. CIT (PLD 1972 Lah. 79) persuades as to stick to the view that the loss of fixed assets is allowable under section 10 (2) (vii) of the income Tax Act. However, the facts in the present case arc not evident from the assessment as framed on 24-10-1976, because the disallowance of Rs.1,20,176 has not been discussed there and what the assessing officer disallowed was Rs.5,936. We would, therefore, VACATE the order by the learned Appellate Assistant Commissioner ands set aside the assessment quo-ad-hoc directing the assessing officer to re? examine the position and consider the loss on the basis of written down value and in the light of the direction hereinabove."
The High Court decided it in favour of the assessee.
C A No. 254-K/90.
CIT v M/s Electronic Industries Limited.:
29. For the assessment year 1972-73 (year ending 30th June, 1972) the respondent/assessee claimed loss of depreciated assets in East Pakistan to the tune of Rs:2,33,420 which was denied to him by the Income Tax Officer, the Appellate Assistant Commissioner and by the Income Tax Appellate Tribunal. The assessee, however, succeeded in obtaining a reference to the High Court of the following question of law arising in the case:--
"Whether on the facts and in the circumstances of the case the Appellate Tribunal was correct in holding that the written down value of assets left in East Pakistan could not be allowed as a reduction under section 10 (2) (vii) of the Income Tax Act."
The High court decided it in favour of the assessee
C A No. 255-K/90.
CIT v ICI? (Pakistan) Limited.:
30. For the assessment year 1975-76 (year ending 30th September, 1974) the assessee sought allowance for loss of assets in East Pakistan to the tune of Rs.2,04,424. This was disallowed by the Income Tax Officer and the Appellate Assistant Commissioner. The Tribunal also maintained the disallowance on the ground that the assessee failed to prove that the assets had been actually acquired by the competent authority under any law for the time being in force, However, the assessee sought reference to the High Court of the , following question of law and obtained it:--
"Whether, in the facts and circumstances of this case; the Appellate Tribunal was justified in disallowing the claim for loss in respect of fixed assets in East Pakistan under section 10 (2) (vu) of the repealed Income-tax Act, 1922?"???????????
The High Court decided it in favour of the assessee.
C .A No. 25C-K/90
CIT v ICI Pakistan Manufactures Ltd.:
31. For the assessment year 1975-76 (year ending 30-9-1974) the assessee claimed a write off of Rs.45,07,717 on account of written down value of assets located in East Pakistan. This was disallowed by the Income Tax Officer. The Appellate Assistant Commissioner upheld this order. The Tribunal rejected the appeal of the assessee. The Tribunal, however, referred the following question of law to the High Court on an application filed by the assessee:--
"Whether, in the facts and circumstances of this case, the Appellate Tribunal was justified in disallowing the claim for loss in respect of fixed assets in East Pakistan under Section 10 (2) (vu) of the repealed Income Tax Act, 19227
The. High Court decided it in favour of the assessee.
CA, No. 257-K/90 ????
CIT v M/s United Line Agencies of Pakistan Ltd.:
32. For the assessment year 1973-74 (year ending 31-12-1972) the respondent/assessee claimed a sum of Rs.2,56,825 in respect of loss of fixed assets in East Pakistan. The Income Tax Officer disallowed it. The Appellate Assistant Commissioner maintained that order. The Income Tax Appellate Tribunal also rejected the claim on the ground that loss did not amount to `discard' of the assets nor the compulsory acquisition by a competent authority.
However, on the 'request of the assessee, the following question of law was referred to the High Court:--
"Whether, in the facts and the circumstances of the case, the Tribunal was right in holding that the assessee did not discard the assets and hence could not claim it as loss under section 10(2)(vii) of the Income Tax Act?" '
The High Court decided it in favour of the assessee.
CA.No.258-K/90
CIT v. M/s. Siemen's Pakistan Engineering Co. Ltd.:
33. In the assessment year 1973-74 (accounting period ending 30-9-1972) the respondent-company claimed loss of fixed assets in East Pakistan, written down value of Rs.1,61,130. The Income Tax Officer disallowed it following the Central Board of Revenue Circular No. II of 1972 dated 28-11-1972 by observing as hereunder:-- .
"However, according to the instructions of the C.B.R. vide Circular No. II of 1972 dated 28-11-1972 the loss of fixed assets is not to be treated as revenue loss. The written down value of the fixed assets lost in East Pakistan is Rs.1,12,880 against their book value of Rs.1,61,130. The assessee has claimed loss under section 10(2)(vii) to the extent of written down value of the fixed assets. However, this section cannot be invoked as the assets in question have neither been sold nor transferred by way of exchange, nor compulsorily acquired by a competent authority nor discarded, demolished or destroyed- in the previous year. The circumstances under which the assets have been lost are entirely different from any of the situations visualised in section 10(2)(vii). It is for this reason that a special Circular has been issued by the Central Board of Revenue."
34. The Appellate Assistant Commissioner upheld this order on 15-7-1975. So did the Tribunal on 15-1-1978. The Tribunal finally referred the following question of law to the High Court:--
"Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in determining that the loss of fixed assets in the former East Pakistan was not covered by section 10(2)(vii) of the Income Tax Act?"
The High Court decided it in favour of the assessee.
C.A.No.253-K/90.
CIT v. M/s. Lever Brothers Pakistan Ltd.
35. For the assessment year 1973-74 (year ending 31st of December, 1972) the assessee claimed a sum of Rs.34;62,012 on account of loss of fixed assets in East Pakistan. This was disallowed by the Income Tax Officer and the Appellate Assistant Commissioner. This was affirmed by the Tribunal in view of its earlier judgment on the same question. However, the Tribunal declined to refer the question to the High Court whereupon the assessee approached the High Court directly raising the following question of law for decision:--
"Whether in the facts and circumstances, the Tribunal was right in holding that the loss in respect of depreciable fixed assets of the applicant in East Pakistan was not allowable as a deduction under clause (vii) of subsection (2) of section 10 of the Income Tax Act?"
The High Court by its judgment dated 8-12-1987 answered the question in favour of the assessee.
???????????
CA No 568-K/90
IT v. M s. Jenson and Nicholson of Pakistan Ltd.:
36. For the assessment year 1975-76 (year ending 31-12-1974) the respondent-assessee claimed a loss in fixed assets valued at Rs.8,09,948 in East Pakistan. The Income Tax Officer, the Appellate Assistant Commissioner and the Tribunal, all disallowed this claim for various reasons. However, on the request of the assessee, the following question of law was referred to the High Court:--
"Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in determining the fact that the loss of fixed assets in the former East Pakistan was not covered by section 10(2)(vii) of the Income Tax Act?" .
The High Court by its judgment dated 20-4-1988 answered it in favour of the assessee on the strength of the decision in Lever Brothers Pakistan Limited v. Commissioner of Income Tax, Central Zone `A',, Karachi (1988 PTD 195).
CA.No.710-K/90
CIT v. Pakistan State Oils Co. Ltd.:
37. For the assessment year 1972-73 (year ending 31,r12-1971) the assessee claimed from its East Pakistan business up to 25-11-1971 income of Rs.19,79,568. The Income Tax Officer proportionately increased it to Rs.21,96,180 for the entire accounting year. The assessee was a non-resident company and was accountable only for the profits accruing to it in Pakistan. The accounting period of the assessee ended on 31-12-1971. The Appellate Assistant Commissioner upheld the addition. The Appellate Tribunal also affirmed the addition. However, on an application by the assessee, the Tribunal referred the following two questions of law to the High Court:--
"(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant/assessee, a non? resident company was liable to be subjected to income-tax in respect of profits accruing or arising to it in the erstwhile East Pakistan for the previous year ending 31-12-1971?
(ii)??????? Whether on the facts and in the circumstances of the case the Tribunal was right in holding that erstwhile East Pakistan continued to be a part of Pakistan till the date of its recognition by Pakistan?"
The High Court by its judgment dated 26-9-1988 answered both the questions in favour of the assessee.
C.A.No.711-K/90
CIT v. M/s. Pakistan Tobacco Company Ltd.:
38. For the assessment year 1975-76, the respondent claimed a sum of Rs.1,91,53,298 representing loss of fixed assets in Bangladesh under section 10(2)(vii) of the Income Tax Act. It was disallowed by the Income Tax Officer, the Appellate Assistant Commissioner and the Tribunal. The Tribunal gave the following three reasons for upholding the disallowance of the claim:--
"(i)??????? Even if it could be assumed that the Government of Bangladesh was a `Competent Authority' the act of acquisition of asset should have followed (de facto recognition by the Government of Pakistan in February 1974 and the de jure recognition of May 1974) and not preceded it to entitle the applicant of the benefit .for acquisition of assets by the authority.
(ii)??????? The applicant failed to establish with reference to an official notification in the Gazette etc. or any other evidence to prove that the Directors/Managers of the applicant left in Bangladesh, were not able to control and manage its branches. The applicant thus failed to prove that any contingency as contemplated in section 10(2)(vii) had occurred. In fact, the Bangladesh Acting President's Order No.l of 1972 does not contemplate the acquiring of all concerns having their head offices in the former West Pakistan nor does it make the taken over concerns as the property of the Government of Bangladesh. It only provides for `take over' of management and control.
(iii)?????? In order to claim the loss under section 10(2)(vii) of the repealed Act the applicant-assessee had to write off the asset in the previous year relevant to the assessment year in which the loss was being claimed. Secondly, it was also to . be examined whether clause (vii) of subsection (2) of section 10 was applicable only to the asset discarded, demolished or destroyed or it could also be extended to the acquisition of assets by any authority. The Tribunal did not give any finding on these issues because the applicant failed to prove that its assets were at all taken over (or acquired) by the Government of Bangladesh."
39. On a reference application having been filed by the assessee relatable to the assessment years 1975-76, 1976-77 and 1977-78, the following three questions of law were referred by the Tribunal to the High Court:--
"(1)????? Whether the Income Tax Appellate Tribunal acted in accordance with law in confirming computation of export rebate as made by the Income Tax Officer?
(2)??????? Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in holding that loss in respect of fixed assets in the former East Pakistan was not covered by section 10(2)(vii) of the repealed Act?
(3)??????? Whether on the facts and in the circumstances of the case the Tribunal was justified in upholding the levy of additional tax under section 45(A) of the repealed Income Tax Act?"
Questions Nos.l and 3 were found to be dependent on question No.2. It was agreed before the High Court that if question No.2 was answered in favour of the assessee, the other two questions did not require an answer and the High Court by its judgment dated 30-11-1988 held the losses in East Pakistan to be admissible and left unanswered the other two questions.
CA. No.613-K/90.
CIT v United Bank Limited:
40. For the assessment year 1972-73 (year ending 31-12-1971) the assessee a banking company filed revised return showing an amount of Rs.45,90,941 as `East Pakistan Profit not repatriated' to West Pakistan and another amount of Rs.20,74,214 on the buy back shares. The claim was denied. It was upheld by the Appellate Assistant Commissioner and also disallowed by the Tribunal. The following two questions of law, however, were referred to the High Court on an application made by the assessee:--
"(1)????? Whether on the facts and in the circumstances of the case the Tribunal was justified in upholding the orders of the income Tax Authorities taxing the profit of East Pakistan Branches of the assessee amounting to Rs.45,90,941 which had not been repatriated to its Head Office at Karachi?
(2)??????? Whether on the facts and in the circumstances of the case the Tribunal was justified in upholding the orders of the Income Tax Authorities charging to tax the amount of Rs.20,74,214 being the interest accrued on by back shares, which was not received by the Head Office of the assessee at Karachi?"
41. The High Court answered these questions by its judgment dated 15-8-1989, as hereunder:--
"It cannot be denied that under section 4 of the Act only such income is assessable to tax which is actually received or which is deemed to have been received by the assessee in Pakistan. There being no categorical finding by the Income Tax Authorities that the disputed amount of Rs.45 lacs and Rs.20 lacs and odd shown in the revised return of the assessee were in fact received by the applicant, the assessment order suffered from legal infirmity. The learned counsel for the department very frankly stated that these questions may now be decided by the authorities in the light of above observations. We, accordingly, allow this reference with the observation that the income?tax authorities will re-determine the question of inclusion or otherwise of the sum of Rs.45 lacs and Rs.20 lacs and odd in the income of the assessee for the period ending on 31-12-1971 in the light of the observation made by us above. The reference is decided accordingly but there will be no order as to costs."
C.A. No. 225-K/91
CIT v. M/s. Glaxo Laboratories leak
42. Leave to appeal was granted to examine the following two questions of law out of four questions that were referred to the High Court:--
"(1)????? Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing the loss of fixed assets amounting to Rs.1,18,79,220 claimed by the assessee under section 10 (2) (vii) of the Income-tax Act of 1922?
(2)??????? Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Reference Application was barred by 21 days specially when the order in appeal was passed after repeal of the Income-tax Act of 1922 and after promulgation of the Income Tax Ordinance of 1979?"
For the other two questions (Nos.2 and 3, the above two questions being Nos.l and 4) by which the assessee was aggrieved and not the Commissioner of Income-tax, a separate Petition for Leave to Appeal No. 423-K of 1991 (converted into appeal as Civil Appeal No.237-K of 1991) was filed.
43. For the assessment year 1974-75, the respondent/assessee claimed a loss of fixed assets in East Pakistan amounting to Rs.1,18,79,220 under section 10(2)(vii) of the Income Tax Act, 1922 which was disallowed by the Income-tax Officer. Further, the Income Tax Officer found that the assessee had obtained raw material from their foreign associates at higher prices than was commonly available in the open international market. The Income Tax officer worked out that difference in the market price and the purchase price and added a sum of Rs.47,00,000 under section 42(2) of the Income-tax Act.
44. An appeal was taken to the Appellate Assistant Commissioner who upheld the order against the assessee so far as disallowance of loss in East Pakistan was concerned but allowed the appeal with regard to applicability of section 42 (2) of the Income-tax Act and directed the income Tax Officer to examine the question de novo. The assessee went in appeal and succeeded.
45. The appellant moved an application under section 136 (1) of the Income Tax Ordinance, 1979 for reference which was taken to be time-barred by 23 days and rejected. A direct Reference was thereafter preferred under section 136 (2) raising the following four questions of law:--
"(1)????? Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing the loss of fixed assets amounting to Rs.1,18,79,220 claimed by the assessee under section 10 (2) (vii) of the Income-tax Act of 1922?
(2)??????? Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that subsection (2) of section 42 of the Income-tax Act of 1922 is applicable in this case?
(3)??????? Whether on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addback of Rs.47,00,000?
(4)??????? Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Reference Application was barred by 21 days specially when the order in appeal was passed after repeal of the income-tax Act of 1922 and after promulgation of the Income Tax Ordinance of
1979?"
46. The High Court allowed the losses in East Pakistan, also allowed the applicability of section 42 (2) and addition of Rs.47,00,000 and held the Reference to be time-barred. Hence, leave to appeal was granted to the Commissioner of Income Tax on questions Nos.l and 4 while questions Nos.2 and 3 were subject-matter of appeal in Civil Appeal No. 237-K of 1991 filed by the assessee M/s. Glaxo Laboratories (Pakistan) Limited disposed of on 21-4-1992. ???
47. So far as question of limitation is concerned, for reasons recorded in the Commissioner of Income Tax, Central Zone `B', Karachi v. M/s. Asbestos Cement Industries Limited, Karachi (Civil Appeals Nos.261-K/1990 etc.), decided on 11-1-1993 and the Reference Application to the Income Tax Appellate Tribunal under section 136(1) as well as direct Reference to the High Court under section 136(2) are held to be within time. The appeal to the extent of question of limitation is accepted and judgment of the High Court on the point is set aside.
48. Now we come to the common question involved in all these appeals.
49. In all these appeals a common question raised was that the benefit (d clause (vii) of subsection (2) of section 10 of the Income Tax Act was controlled by the first proviso which required that such amount is actually written off in the books of the assessees. According to the learned counsel for the Department, in none of these cases this mandatory requirement of the law was satisfied. It is to be noted in this context that the loss of assets had taken place in December, 1971. Its compulsory acquisition, though from December, 1971 had taken place by the statutory instrument which had come into force in 1972, the recognition of Bangladesh itself had taken place in 1974 having retrospective effect from December, 1971. Unless all the three requirements were complete, the assessee could not justifiably lay a claim to the loss nor could comply with the requirements of the proviso. These statutory instruments had the effect of retrospectively depriving the assessees of the property and prospectively enabling them to lay claim in respect of them. For such a situation as this, the maxim Lex Non Cogit ad Impossible (Co Litt. 231 b.)--The law does not compel a man to do that which he cannot possibly perform, exists. The parameters within which it operates have been clearly laid down in Broom's Legal Maxims, as hereunder:--
"The law itself and the administration of it, said Sir W. Scott, with reference to an alleged infraction of the revenue laws, must yield to that to which everything must bend, to necessity; the law, in its most positive and peremptory injunctions, is understood to disclaim, as it does in its general aphorisms, all intention of compelling to impossibilities, and the administration of laws must adopt that general exception in the consideration of all particular cases. "In the performance of that duty, it has three points to which its attention must be directed. In the first place, it must see that the nature of the necessity pleaded be such as the law itself would respect, for there may be a necessity which it would not. A necessity created by a man's own act, with a fair previous knowledge of the consequences that would follow, and under circumstances which he had then a power of controlling, is of the nature. Secondly, that the party who was so placed used all practicable endeavours to surmount the difficulties which already formed that necessity, and which, on fair trial, he found insurmountable. 1 do not mean all the endeavours which the wit of man, as it exists in the acutest understanding, might suggest, but such as may reasonably be expected from a fair degree of discretion and an ordinary knowledge of business. Thirdly, that all this shall appear by distinct and unsuspected testimony, for the positive injunctions of the law, if proved to be violated, can give way to nothing but the clearest proof of the necessity that compelled the violation" (The Generous, 2 Dod. 321. at pp. 323, 324) "
??????????? 50.?????? Apart from the maxim, there is a decision of Bombay High Court in Commissioner of Income-tax, Bombay City II v. London Hotel (1968 ITR 62) where this proviso was considered at great length and the conclusion drawn was as hereunder:-?
"If in such a case we were to hold that stiff as a matter of law the assessee would not be entitled to the allowance because the amount is not actually written off in the books of the assessee, we think we would be perpetrating a clear injustice."
51. In. view of the discussion above, Civil Appeal No.60-K of 1987 is allowed and the judgment of the High Court is set aside while all the other anneals filed by the Commissioner of Income Tax are dismissed maintaining the judgments of the High Court allowing the applicability of section 10(2)(vii) of the Income Tax Act to losses incurred in East Pakistan (now Bangladesh) on account of the compulsory acquisition of the assets by a competent authority which stood recognized by the Government of Pakistan. No order is made as to costs.
Civil Appeals No:60-K of 1987 etc.
NASIM HASAN SHAH, J.---I agree with the final conclusion arrived at by my learned brother Shafiur Rehman, J. that Civil Appeal No. 60-K of 1987 be allowed and the judgment of the High Court set aside.
I also agree that all the appeals filed by the Commissioner, Income Tax against the judgment of the High Court allowing the benefit of section 10(2)(vii) of the Income Tax Act on account of Bangladesh Authorities taking over compulsorily the properties concerned, without payment of any compensation, be dismissed.
MUHAMMAD AFZAL ZULLAH, CJ.---I agree.
ORDER OF THE COURT
Civil Appeal No. 60-K of 1987 is allowed and the judgment of the High Court is set aside.
All other appeals filed by the Commissioner of Income Tax against the judgments of the High Court allowing the benefit of section 10(2)(vii) of the Income Tax Act on account of Bangladesh authorities taking over compulsorily the properties concerned, without payment of any compensation,' are dismissed.
No order is made as to costs..
M.BA./P-207/S?????????????????????????????????????????????????????????????????????????????????? Order accordingly.