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

----Ss. 17 & 32---Interest on securities---Method of accounting ---Assessee, a banking company maintaining its accounts on mercantile system and accounting for the interest income on accrual basis---Income from interest of such assessee on securities and debentures can be taxed on accrual basis and not on receipt basis---Declaration of income for tax purposes on receipt basis by the assessee and claim of expenditure on mercantile basis would be an anomalous situation requiring correction.

(1952) 22 ITR 13 and Arunachaniam Chettier & Sons v. CIT, Madras (1935) 3 ITR 464 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 23---Deduction---Admissible expenditure ---Assessee, a nationalised Bank made certain obligatory contributions to Pakistan Banking Council in respect f Qarz-e-Hasna Scheme and claimed such contributions as an expenditure-- Assessee could not establish that the contributions were made for the purpose of business of the assessee---Held, merely because that assessee was under an obligation to contribute certain funds to Pakistan Banking Council and that the amounts were not likely to be recovered back and any recovery was to be applied for further advance to the Pakistan Banking Council, would not make the expense admissible.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 91---Penalty---Addback---Assessment for the relevant assessment year on the issue of profit and loss addbacks had been set aside partly---Penalty under S.91, Income Tax Ordinance, 1979 was liable to be struck off as the very basis of levy of such penalty had been disturbed.

Begum Mumtaz Jamal's case PLD 1976 Lah. 761 ref.

Zia H. Rim and Naeem Akhtar, FCA for the Assessee.

Abdul Rauf, D.R. for the Department.

Date of hearing: 16th May, 1993.

ORDER

INAM ELAHI SHEIKH (ACCOUNTANT MEMBER).---These are twelve appeals, four by the Department and eight by an assessee, a public limited company, deriving income from banking business. The assessee was a. nationalized bank in all the years under consideration. The common grievance of the Department in all the four appeals is the allowance of Qarz-e-Hasna' as a deduction by the first appellate authority, whereas the common grounds in all the appeals of the assessee are the dispute over the method of calculation of interest in income on Government securities, the investment in debentures and additions in the P&L expenses. The assessee has also agitated the disallowance of Loss on (government securities in the assessment years 1986-87, 1987-88 and 1988-89 whereas the disallowance of staff welfare expenses in the assessment year 1987-88 has been agitated. In the assessment year 1988-89, the disallowance of bad debts, charging of exchange fluctuation to tax and the allocation of expenses to dividends income has also been agitated. In the assessment years 1989-90 and 1990-91, the assessee is also aggrieved on the issue of disallowance of `Qarza-e-Hasna' and bad debts. In the assessment year 1990-91, the disallowance of provisions for staff pension has also been agitated.

2. The facts in brief are that the assessee maintains books of accounts on mercantile system and audited accounts were produced wherein the interest income from Government securities and from investment in debentures were shown on accrual basis. In the computations for assessment years 1982-83 and 1983-84 the assessee excluded such income, which had been counted for on accrual basis in the accounts, for separate consideration, and added the income from securities actually received during the year. The assessing officer confronted the assessee with the proposal to tax such income on accrual basis as shown in the audited accounts prepared on mercantile basis. The assessee referred to Circular No.15 of 1954 to support the contention that the interest was income when it was received. The assessing officer did not accept this contention as the Income-tax Act, 1922 had been repealed and thus, in view of the assessing officer, such Circular had lost its validity. The assessing officer had recorded in his order that the provisions of section 32 of the Income Tax Ordinance (hereinafter referred to as Ordinance) were different from the provisions of section 13 of the Repealed Income Tax Act in so far as that the provisions of section 32, relating to the method of accounting, specifically included the computation for the purposes of section 17. Whereas no such specific mention was made in the provision of section 13 of the Repealed Act. Hence, for the reasons that the assessee had been preparing the accounts on mercantile system, and had been accounting for the interest income and expenditure on accrual basis, he rejected the computation offered by the assessee and proceeded to compute the income as per audited accounts offered by the assessee. He, therefore, proceeded to assess the income on the basis of P&L account subject to adjustments for P&L addbacks, bad and doubtful debts and provision for taxation by foreign branches. The learned CIT(A), after considering the arguments and the facts of the case, confirmed this treatment for the assessment years 1982-83, and 1983-84 and also set aside the additions under general charges and entertainment vide order dated 28-6-1984. In the assessment year 1982-83, the assessing officer also imposed a penalty under section 91 of the Ordinance amounting to Rs.284,873 for failure to pay the tax demand. The penalty was imposed at 5% and the learned CIT (Appeals) reduced the penalty to one-half.

3. In the assessment years 1986-87 and 1987-88 the assessing officer again rejected the computation prepared by the assessee in respect of such interest income and he added the difference between the accrued income and the actually received income to the income of the assessee. In these two assessment' years the disallowance and addbacks also included the claim on, accounts of `Qarz-e-Hasna' provisions for pension and staff welfare fund and addbacks out of the other expenses. In the assessment year 1987-88 the assessee's claim of the loss on purchase of Government securities was also not allowed and the same was treated as a capital loss. The learned CIT(A) vide the order, dated 8-6-1988, deciding the assessee's appeals for the assessment years 1984-85 to 1987-88 allowed the assessee's claim of deductions in respect of `Qarz-e-Hasna' in all such four years whereas the addition on account: of difference in interest income, arising out of the method of calculation, i.e.' accrual and actual receipt basis, was confirmed. The disallowance of staff welfare fund in both the years under consideration was upheld and also the disallowance of loss on purchase of Government securities in the assessment year 1987-88 was upheld. Some other relief was also allowed in the P&L expenses. The assessee's claim for provisions for bad debts was not accepted.

4. In the assessment years 1988-89, the computation offered by the assessee was again, rejected and the difference between accrued interest income and the actual receipt income was added to the income. The claim of bad debts was partly accepted whereas the claim of `Qarz-e-Hasna' was not allowed. The assessee was found to have added back a provision for pension gratuity. Hence, no interference was made. Loss of purchase of Government securities was again not allowed. The assessee was found to have deducted exchange fluctuation in the computation of income on account of unmerited profits. The assessing officer observed that in the original computation the assessee had not deducted this income from taxable income and since the accounts were maintained on accrual basis, he subjected this income to tax. Other addbacks were made in the P&L expenses. Also, the assessing officer allocated a part of the Admn expenses towards the dividend income on the basis of total receipts to determine the net dividend income. The learned CIT(A) vide the order dated 14-12-1991, again up-held the treatment in respect of the method of accounting for interest income, i.e. accrual method was confirmed. The addbacks in the bad debts to the extent of Rs.25,31,176 out of a total addition of Rs.8,15,92,417 was set aside. It may be mentioned here that the assessee had claimed total bad debts at Rs.8,78,59,659 out of which Rs.62,67,242 was allowed by the assessing officer. The addition on account of `Qarz-e-Hasna' was deleted whereas the disallowance of loss on purchase of Government securities was upheld. The treatment of exchange fluctuation accorded by the assessing officer was confirmed. The issue of provision for bad debts was set aside. The allocation of part of the administrative expenses towards the dividend income was upheld.

5. In the assessment years 1989-90 and 1990-91f again the method of computation of interest income, Government securities and debentures was rejected by the assessing officer and he added difference between accrued income as per audited accounts and the actual receipts as offered by the Bank to the income of the assessee in both the years. The claim of contribution on account of `Qarz-e-Hasna' was not accepted. The assessee's claim of provision for bad debts amounting to Rs.12,30,00,000 was curtailed to Rs.17,98,000 whereas the claim of bad debts written off was totally disallowed. The claim of foreign taxes and provision for bonus to staff were disallowed. Other addbacks were made in the P&L expenses. In the assessment year 1990-91, the provision for pension was also disallowed. The learned CIT(Appeals), vide the order, dated 3-10-1992 confirmed the treatment of interest income on Government securities and debentures as in the past. In this regard, the learned CIT(A) referred to an order of the Tribunal dated 26-3-1984 pertaining to the assessment years 1980-81 and 1981-82. The issue of `Qarz-e-Hasna was also decided against the assessee whereas the issue of provision for bonus was set aside for de novo decision. The additions out of the provisions for doubtful debts were confirmed whereas additions on account of, bad debts were set aside for de novo consideration in both the years. The allocation of administrative expenses to the dividend income was disapproved and the treatment of the assessing officer was reversed. The addbacks in the P&L expenses were confirmed. 'The disallowance of provision for pension and gratuity in the assessment year 1990-91 was confirmed.

6. Both the parties have been heard and the relevant orders perused. The appeals are decision in the following manner:

TAXABILITY OF INCOME FROM GOVERNMENT SECURITIES AND

INVESTMENT IN DEBENTURES WHETHER ON ACCRUAL BASIS OR

RECEIPT BASIS

7. The main contention of the learned counsel of the assessee was that the Department had departed from the past practice in these years without assigning any reason. It was elaborated by the learned counsel of the assessee that the assessee had been offering for tax the interest income received in the past, against the accrued income reflected in the audited accounts, on a' consistent basis. The learned counsel of the assessee had drawn our attention to the Tribunal's order, dated 26-3-1984 passed in ITA No.3766/LB/81-82 and ITA No.426/LB/82-83 pertaining to the assessment years 1980-81 and 1981-82 of the same assessee. The learned counsel of the assessee further argued that the provisions of section 8 of the Repealed Act were almost the same as those of section 17 of the Ordinance wherein the interest income receivable is said to be chargeable to tax. The learned counsel of the assessee strongly disputed that the provisions of section 32 were not strictly applicable in the circumstances of this case as section 32 was not a charging section. It was argued that the provisions of the charging section, i.e. section 8 of the Repealed Act, having not changed, there was no justification for the change in the computation of income for tax purposes. The learned counsel of the assessee further relied upon the provision of Circular No.15 of 1954 which was also relied upon in the proceedings before the officer below. With these submissions, the learned counsel of the assessee supported the assessee's appeals on the issue of treatment of the interest income on receipt basis as against the treatment by the Department on accrual basis, the learned D.R., on the other hand, supported the orders of the departmental officials on this issue with the same reasoning as given in the impugned orders.

8. There is no dispute that the assessee maintains the accounts on mercantile basis and that upto the assessment year 1981-82, the interest income from the Government securities and investment in debentures had been taxed on receipt basis prior to the assessment year 1982-83. However, in the assessment year 1982-83 the assessing officer realized the change in the law, especially in the provisions of section 32 of the Ordinance which reads as follows:---

"32. Method of accounting.---(1) Income, profits, and gains (except income from dividends) shall be computed for purposes of sections 17, 19, 22, 27 and 30 in accordance with the method of accounting regularly employed by the assessee."

As against this section 13 of the repealed Act read as follows:---

"Income profits and gains shall be computed for the purposes sections 10 and 12 in accordance with method of accounting regularly employed by the assessee."

It may be mentioned here that section 10 of the repealed Act dealt with the payment of tax by an assessee under the head, profits and gains for business, profession or vocation whereas section 12 dealt with the taxability of income from other sources. It may also be mentioned here that the provisions for the taxation of interest on Government securities was contained in section 8 of the repealed Act. Thus, it is clear that there was no mention of section 8 in the provisions of section 13 of the repealed Act and to that extent the observations of the assessing officer are correct. It is also the contention of the learned counsel of the assessee that section 32 of the Ordinance or section 13 of the repealed Act were not charging sections and that they merely prescribed the method of accounting. It was urged by the learned counsel of the assessee that section 8 of the repealed Act and section 17 of the Ordinance were actually the charging sections which should be considered while determining the tax on, interest income. Special emphasis was laid by the learned counsel of the assessee on the issue of interest receivable in these two sections i.e. section 8 of the repealed Act and section 17 of the Ordinance. Thus, the contention of the learned counsel of the. assessee appears to be that notwithstanding the change in the provisions of section 13 of the repealed Act on succession thereof by section 32 of the Ordinance, by incorporating section 17 of the Ordinance into the provisions of section 32 of the Ordinance, in addition to section 22 and section 30 of the Ordinance (which was the successor of sections 10 and 12 of the repealed Act respectively), the interest should have charged to tax on actual receipt basis as in the past whereas the assessee had maintained the accounts on mercantile basis consistently. The learned counsel of the assessee has also supplied copy of Circular No.15 of 1954 wherein the Board has ordered that the interest on securities should be assessed only on the receipts basis. It would be useful to re-produce the same for the convenience of reference as below:---

"Interest receivable--Interpretation of section 8 of the Income-tax Act reads as follows:

"The tax shall be payable by an assessee under the head "Interest on securities" in respect of the interest receivable by him on any security of the Central Government or of a Provincial Government or on debentures or other securities for money issued by or on behalf of local authority or a company."

Interpretation of the word `receivable' has been the subject of a reference in the High Court in India and Pakistan. The question is: When does the interest become `income' and thus liable to tax? Is it when the interest is capable of being received or when-it is actually received?

The unanimous view of the Court is that the `interest' is `income' when it is received and that the word `receivable' only refers to the quantum of the interest, i.e. gross interest before deduction of income-tax. Arunechalam Chettiar & Sons v. CIT Madras (3 ITR 464): Seth Lalbhai Dalpathbai v. CIT, Bombay (22 ITR 13) and Central Exchange Bank Ltd., Lahore.

A view has sometimes been taken that if the assessee maintains his accounts of the mercantile system, interest on securities is liable to tax when it, becomes due. This view is incorrect. The "method of accounting" has been mentioned only in section 13 but that section specifically refers to income, profit and gains which are to be computed for purposes of sections 10 and 12. The questions of method of accounting should not, therefore, arise with respect to the income under section 8.

The Board's orders, therefore, are that interest on securities should be assessed only on the receipt basis. The Central Government and "Provisional Government in section 8 mean the Government of Pakistan and `Provincial Government' in Pakistan respectively; interest on securities of a foreign Government would be assessable under section 12 and the provisions of section 13 would then be applied. (Circular No.15 of 1954)."

A plain reading of this Circular No.15 of 1954 reveals that the method adopted in the past was on the basis of the provisions of the repealed Act which have since been changed by import of reference to section 17 of the Ordinance dealing with the chargeability of interest on securities into the provisions of section 32 of the Ordinance dealing with the method of accounting whereas section 8 of the repealed Act was not mentioned in the provisions of section 13 of the repealed Act.

9. We have also perused the order of the Tribunal, dated 26-3-1984 pertaining to the assessment years 1980-81 and 1981-82 of the assessment assessee. In those years, the dispute before the Tribunal was that the assessing officer had curtailed the interest expenses claimed on accrual basis to the extent of income offered by the assessee for tax purpose or receipt basis instead of offering the income on accrual basis. Thus, it is clear that the Department had been accepting the computation offered by the assessee in respect of the interest income, which is now in dispute. Thus, it appears that the assessee had been applying dual standard to income and related expenses. On the one hand, the income was offered on receipt basis whereas, on the other hand, the expenditure was claimed on actual basis. For this reason, the Department curtailed the expenditure on account of interest and such treatment was upheld by the Tribunal vide the aforementioned order and that the matter is already referred to the High Court vide the order, dated 7-8-1985 in RA Nos. 106-107/LB/83-84 on the assessee's application.

10. The learned counsel of the assessee has assisted us by providing the details regarding the method of assessments in the case of other nationalized banks and it appears that in the case of such other nationalized banks, both the methods of computation of interest on securities and debentures have been accepted. In some of the cases, the actual receipt method had been accepted whereas in other cases interest on accrued basis had been accepted, as declared. We have also perused the decision of the Bombay High Court reported as (1952) 22 ITR 13 as referred in Circular No.15 of 1954 in the case of Lalbhai Dalpatbhai v. CIT, Bombay. In the case of Seth Lalbhai Delpatbhai, the Bombay High Court has also discussed the case of Arunachaniam Chettiar & Sons v. CIT Madras cited as 1935 (3 ITR 464), which also has been referred to in Circular No.15 of 1954. In the case of Seth Laibhai Dalpatbhai, the learned Judges of the Bombay High Court have discussed the term `receivable' used in section 8 of the repealed Income Tax Act by reference to the provisions. of sections 4, 18 and 13 of the repealed Act. The question in that case of Seth Lalbhai Dalpatbhai was whether interest received on 21-10-1944, which was actually receivable on 15-10-1944, was to be assessed in the assessment year 1945-46 (income year from 30-10-1943 to 17-10-1944) or in the subsequent assessment year 1946-47. In case the Tribunal had held that the income of the assessee was chargeable in the assessment year 1945-46 as the same had become receivable on 15-10-1944. The High Court held that the income was chargeable for the assessment year 1946-47. However, in our view that judgment was based on the provisions of the repealed Act, 1922 and the following extract of the Judgment is making the things very clear:---

"The Tribunal has taken the view in their order that in the past the assessee had maintained the mercantile system of accounting and that in one reason why in the opinion of the Tribunal the assessee is liable to pay tax on the interest when it becomes due and not when it is actually received. With respect to the Tribunal, the error which it. has fallen into is in overlooking the provisions of section 13. Under that section a method of accounting may be employed by an assessee for the purpose of sections 10 and 12, and if a method is adopted which is known as the mercantile method, then his income would be assessed on that basis. In other words, a merchant may employ the mercantile method and compute his income on the basis of debts due and liable to be paid rather than the cash method by which he would show his income in accordance with moneys actually received by him. When the first method is adopted the liability to pay tax would be on the accrual basis and not on the receipt basis. But it must not be forgotten that section 13 only applies to sections 10 and 12. There can be no mercantile method basis as far as section 8 is concerned. As far as section 8 is concerned, interest on securities only become "income" when it is actually received and not when it is due or capable of being received by the assessee."

(Emphasis added)

From the facts of the case of Seth Lalbhai Dalpatbhai (supra) it appears to us that the interpretation of word `receivable' was made in the light of the peculiar provision of the repealed Act; especially because section 13 of the repealed Act only was applicable to sections 10 and 12 thereof. However, in the present case, the provisions of section 32 make a specific reference to the income chargeable under section 17 of the Ordinance for the purposes of determination of the method of accounting. The learned Judges of the High Court while deciding the case of Seth Lalbhai Dalpatbhai also referred to the provisions of section 18 for the repealed Act to elaborate that the interest on securities was to be subjected to deduction of tax at source at the time of payment of interest and that failure to deduct such tax, could result in the assessment as `assessee in default' in the hands of the person filing to make such deduction. However, in our view in the presence of the reference to section 17 in the provisions section 32 of the Ordinance that reasoning looses its force. Hence, on legal grounds, we are of the considered view that the income from interest on securities and debentures should be taxed on accrual basis and not on receipt basis since the assessee is maintaining the accounts on mercantile system and it accounts for such income on accrual basis.

11. We may also discuss the other aspects of this case, i.e. the treatment accorded to other banks and also treatment accorded to this assessee in the earlier years. As already said above, different banks have been given different treatment on the basis of their returns and some of the assessments have been made on the basis of accrued income whereas the other have been made on the basis of receipts basis. Obviously, both the. methods could not be held to be correct and one of these two methods had to be applied in all the cases on a consistent basis. We have already given a finding in the preceding paragraph that the income in such circumstances should be adopted on accrual basis. Thus, even if the Department has been accepting the assessee's computation whereby the interest income was offered on receipt basis, although the accounts were maintained on mercantile basis, and this assessee has also filed a computation to account for the interest income on cash basis, we feel that it would be correct to put the things straight at this stage. We also find that the change in the method of computation of interest income under discussion has also resulted in the simplification of assessment in so far. as the treatment of interest expenditure is involved. In the earlier years, there was always dispute over the question of allowability of interest expenditure vis-a-vis interest income. The assessee had been declaring the income for tax purposes on receipt basis whereas the expenditure claimed on mercantile basis. Prima facie this was an anomalous situation requiring correction. Hence, we maintain the treatment accorded by the departmental officials and dismiss the assessee's appeals for all the years under consideration on this issue.

`Qarz-e-Hasna:

12. This is the only issue involved in the departmental appeals whereas the assessee has also agitated this issue in the assessment year 1989-90. The assessee made certain contributions to Pakistan Banking Council in respect of scheme of Qarz-e-Hasna and claimed such contribution as an expenditure. The assessing officer did not accept his claim with the observation that this was in the nature of loans and not expenditure. Vide the order dated 8-6-1988, the learned CIT(A) allowed this claim of `Qarz-e-Hasna' for the assessment years 1984-85 to 1987-88 and following that order a similar addition was deleted in the assessment year 1988-89 vide the order, dated 14-12-1991. In the assessment year 1989-90, a disallowance of such a claim was maintained. The department has agitated the allowance of `Qarz-e-Hasna' as a deduction in the assessment years 1984-85 to 1987-88 whereas this issue in the assessment year 1988-89 is not before us as there is no departmental appeal for that year fixed today. In the assessment year 1989-90, the assessee has agitated the disallowance of the claim of `Qarz-e-Hasna'. The learned counsel of the assessee has filed a copy of the scheme and also a copy of a letter from Pakistan Banking Council. In the assessment years 1984-85 to 1987-88 the learned CIT(A) allowed the claim of `Qarz-e-Hasna' after observing that this is an obligatory contribution by the assessee bank and an expenditure incidental to its business. On the other hand, in the assessment year 1989-90 this claim was disallowed as its admissibility under section 23 of the Ordinance could not be established. The learned counsel of the assessee has not advanced any arguments to substantiate the admissibility of the expense under section 23 of the Ordinance. Merely, because the Bank was under an obligation to contribute certain amounts towards this claim and that the amounts were not likely to be recovered back and any recoveries were to be applied for further advances by the Pakistan Banking Council, it would not make the expense admissible. The learned counsel of the assessee could not establish that the contribution were made for the purposes of the business of the assessee. In these circumstances, we hold that the contributions on account of `Qarz-e-Hasna' are not admissible expenditure. Hence, all the departmental appeals under consideration are accepted whereas the assessee's appeal on this issue is rejected.

Loss on Government Securities:

13. In the assessment year 1986-87, the assessee has agitated an alleged disallowance of loss on Government securities. However, it was conceded by the learned counsel that no such issue was involved in that year. A similar issue in the assessment year 1987-88 was not pressed by the learned counsel of the assessee. The learned counsel of the assessee also did not address any serious argument on this issue while arguing the appeal for the assessment year 1988-89, requested for setting aside of the issue. He only no interference is made in view of the history of case.

14. As a result, the assessee's appeals on this issue are dismissed.

Staff welfare:

15. In the assessment years 1986-87 and 1987-88, the assessee is aggrieved against the disallowance of staff welfare expenses. These addbacks were made because there was found to be a simple provisions and such addbacks were confirmed vide order, dated 8-6-1988 for the same reasons. The learned counsel of the assessee has argued that the disallowance had been made without confronting the assessee and that such provisions had been made in accordance with the scheme -of CBR. In these circumstances, this issue is remanded back for de novo decision. ,

Bad- debts:

16. The learned counsel of the assessee stated at the time of hearing of the appeals that he did not wish to press this issue for the assessment years 1988-89 and 1989-90 as this issue is said to have already been set aside by the first appellate authority. Hence, no interference is made in the order of the learned CIT(A) on this issue.

Exchange fluctuation:

17. In the assessment year 1988-89, the assessee disclosed exchange fluctuation in the revised computation. However, exemption was claimed as this was said to be a national gain. The assessing officer subjected this amount to tax merely because the assessee had shown this amount in the revised computation' and no such deduction had been made in the original computation. The learned CIT(Appeals) upheld this addition with the observations that the assessee was maintaining accounts on accrual basis. These reasons are not sufficient to charge a national income to tax. Hence, we deem it appropriate to set aside the assessment of this issue for the assessment year 1988-89 for de novo consideration.

Provision for bad debts:

18. In the assessment year 1989-90, the assessee created a provision for bad debts at Rs.12,20,00,000 out of which the assessing officer disallowed an amount of Rs.17,98,000 in respect of debts which were not even found considered to be substandard. In the assessment year 1990-91 again the assessee made a provision at Rs.25,14,00,000 on account of provision for doubtful debts and the assessing officer curtailed the same by an amount of Rs.1,42,48,000 for the same reasons. The learned counsel of the assessee did not address any argument on this aspect of the case. In these circumstances, we see no reason to interfere in the orders of the departmental officials on this issue.

Provision for pension / gratuity

19. In the assessment year 1990-91, the assessee made a provisions for pension and gratuity and the assessing officer disallowed the same as in the immediately preceding the assessee had added back similar amount suo motu and also the assessee had claimed the expense on actual payment basis. The learned counsel of the assessee strongly argued for the acceptance of this claims and reliance was placed on a decision reported as 1985 PTD 413.

20. The Tribunal has been allowing for gratuity if it was a definite and ascertained liability and this-view has also been confirmed by the Karachi High Court in the decision reported as 1985 PTD 413 (Supra). However, the assessee's claim in this regard was not accepted in this year as the provision claimed is not merely of gratuity. Also, it was found that the assessee had been making suo motu addbacks in the past on this account. However, the matter needs reconsideration in the light of the ruling of the Karachi High Court referred- to above. The assessee's accounts for the year 1989-90 pertaining to the assessment year 1990-91 are not before us to reflect the assessee's own accounting policy in this regard. The assessee has also not tiled the details of such provision or the basis thereof. In these circumstances, we are inclined to set aside the assessment on this issue for de novo consideration. The assessee may be provided another opportunity to establish its claim in the light of the provision of the law and the above ruling of the Karachi High Court. The assessee has also agitated that the actual payments of gratuity pension have not been allowed. No such disallowance is reflected in the assessment order. However, if any such disallowance of actual payment has been made, the issue may be reconsidered at the time of re-assessment.

Pro rata allocation of Admn expanses to dividend income:

21. In the assessment years 1988-89,- 1989-90 and 1990-91, the assessing officer allocated Admn expenses to dividend income in the ratio of the total income to total receipts. Vide the order, dated 14-12-1991, the first appellate authority confirmed this treatment for the assessment year 1988-89 whereas for the assessment years 1989-90 and 1990-91, the first appellate authority vide order, dated 3-10-1992 reversed this treatment placing reliance on a decision of the Tribunal, dated 20-10-1991 in the case of State Cement Corporation. Since the order of the learned CIT(Appeals) for the assessment years 1989-90 and 1990-91 is based on the order of the Tribunal, we accept the assessee s appeal for the assessment year 1988-89 and we direct the assessing officer not to allocate the expenses to dividend 'income.

Assessee's appeal against penalty under section 91:

22. In the assessment year 1982-83, the assessing officer imposed a penalty under section 91 of the Ordinance for failure to pay tax demand. As already said above, such penalty was imposed at 10% of the outstanding take demand and the first appellate authority reduce the same to 5%. The learned counsel of the assessee has prayed for the cancellation of the penalty relying on the case of Begum Mumtaz Jamal PLD 1976 (Lah.) 761: Since the assessment for the assessment year 1982-83 on the issue of P&L addbacks has been set aside partly and assessment year 1982-83 on the issue of P&L addbacks partly rejected by CIT(Appeals) the penalty under section 91 is liable to be struck off as the very basis of levy of such penalty has been disturbed.

Profit and loss account addbacks:

23. The assessee has agitated the additions under the heads general expenses as well as donations in all the years under consideration. The curtailment of depreciation has also been agitated, considering the Tribunal's order for the assessment years 1980-81 and 1981-82 the assessments on these issues for the years under consideration are remanded back to the assessing officer for de novo consideration. The assessing officer may obtain necessary details and evidence to establish the admissibility of the expenses under the law.

24. No other ground was pressed.

25. As a result all the appeals under consideration succeed in the manner and to the extent indicated above.

M.B.A./41./T.T.Order accordingly.