COMMISSIONER OF INCOME-TAX, COMPANIES II, KARACHI VS GENERAL TYRE AND RUBBER COMPANY OF PAKISTAN LTD., 1993 PTD-SUPREME-COURT 383 (1993)

(On appeal from the judgment, dated 30-1-1989 of the Sindh High Court, Karachi in Civil Reference No.25 of 1979).

(a) Income-tax Act (XI of 1922)---

..S.10(2) (xvi) .Constitution of Pakistan (1973), Art 185.3 Leave to appeal was granted to consider the question as to whether assessee could legitimately claim deduction Under S.10 (2) (xvi).

(b) Income tax Act (XI of 1922)--

----S.10(2)(xvi)----Assessee company, a subsidiary of an American company was incorporated as a private limited company in Pakistan and claimed deduction of amount on account of technical assistance fee which could not be remitted to the parent company on accrual and the amount was increased to some extent due to the devaluation of Pakistani currency---Held, larger amount which was paid could still be treated as permissible allowance despite the extra cost incurred in discharging its liability.

Radio Picture Limited v. Commissioners of Inland Revenue 22 Tax Cases p.106) fol.

Shaik Haider, Advocate Supreme Court instructed by S.M. Abbas, Advocate-on-Record for Appellant.

Iqbal Naeem Pasha, Advocate Supreme Court with Faizanul Haq, Advocate-on-Record (absent) for Respondent.

Date of hearing: 18th January, 1993.

JUDGMENT

NASIM HASAN SHAH, J.---This appeal, by leave of this Court is directed against the judgment/order of the High Court of Sindh, dated 30-1-1989 in Income Tax Reference No.25 of 1979.

The facts, which form the background of this case, are stated precisely in the order of this Court granting leave to appeal, namely, that respondent company, which is a subsidiary of General Tyres and Rubber Company, Inc. Arken Ohio, U.S.A. was incorporated as a private limited company in Pakistan and for the assessment year 1973-74 claimed deduction of Rs.50,50,055 on account of technical assistance fee which could not be remitted to the parent company on accrual and the amount was increased to some extent due to the devaluation of Pakistani currency.

The Income Tax Officer disallowed the claim of deduction as he took the view that it cannot be treated as revenue expenditure as the liability accrued due to the failure of the assessee to remit the amount in the earlier assessment year. The respondent's appeal to the Appellate Assistant Commissioner was dismissed and same was the result before the Income Tax Tribunal. It is in these circumstances that the following question was referred to the High Court:

"Whether on the facts and in the circumstances of the case, the sum of Rs.50,50,055 paid by the assessee-Company on account of Technical Assistance fee is an admissible deduction in the ascertainment of its profits chargeable to income-tax for the assessment year 1973-74?"

It was argued on behalf of the Department that the liability claimed by the Department is not liable to deduction under section 10(2)(xvi) of the Income-tax Act, 1922, for, it was not due to business expediency, nor was it directly connected with the business, and in support of the submission certain case-law was cited.

On the other hand, it was urged on behalf of the respondent herein that there was a running account maintained between the Head Office and the assessee, and since on account of devaluation of Pakistan currency, exchange rate became higher, and it was a liability in connection with a business-dealing, and was a trading loss. The High Court upheld the contentions raised by the respondent and. answered the question referred to it in the affirmative.

Leave was granted on the question whether the respondent could legitimately claim deduction under section 10(2)(xvi) of Income-tax Act, 1922.

Today when the case came up for hearing before us Mr. Shaik Haider, learned counsel for the appellant, did not seriously contest that the payment made as technical fee ways not due to business expediency and, therefore, not covered by section 10(2)(xvi) of the Income-tax Act, 1922. However, his main contention was that the High Court has misapplied the law to the facts of the case and has granted premium to the defaults committed by the assessee which caused loss to the Revenue. According to the learned counsel, the respondent assessee, for no reason, had defied the terms of the agreement and failed to remit and/or to deposit the amount on due dates, meanwhile Pakistan currency devalued which increased the liability; hence the Income Tax Officer rightly disallowed the deduction and his order was correctly confirmed up to the stage of the Income Tax Tribunal.

We are afraid we cannot accept this contention.

In the first place, the question referred to the High Court was a question different from the one which is being agitated before us. The question referred to the High Court was whether on the facts and in the circumstances of the case a-sum of Rs.50,50,000 paid by the assessee-company on account of technical assistance fee is an admissible deduction whereas the question now being agitated before us is that if the technical fee was paid in time in accordance with the terms of the agreement, the increased amount paid towards the technical fee on account of devaluation of the rupee vis-a-vis U.S. Dollar could not be claimed as deduction because this enhanced amount was paid due to the default committed in its payment by the assessee at the proper time. The learned counsel relied upon the maxim of law that "no man shaft take advantage of his own wrong". This question is clearly a different question which was referred for opinion to the High Court.

Be that as it may even on merits, there is no force in this contention. A somewhat similar question arose in the case of Radio Picture Limited v. Commissioners of Inland Revenue (22 Tax Cases page 106) and such a plea was found to be without force. In that case an English Company did not have sufficient cash to make the payments to the American Company which it was bound to pay in respect of its share of the film receipts, as they fell due- The payment by the English Company was made during the succeeding years only when it was able to find that money but when this was done the purchasing power of the pounds had fallen and the Company had to spend a larger number of pounds sterling than it would have had to do, if there had been no such fall in the value of the British pound. In these circumstances, it was held that the larger amount which was paid could still be treated as permissible allowance despite the extra cost incurred in discharging its liability. This ratio, of which we approve, is also applicable in the circumstances of this case.

The upshot is that there is no force in this appeal which is, accordingly, dismissed but with no order as to costs.

M:BA./C-121/S Appeal dismissed.