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

----S. 26(a) & Fourth Sched., R.5(a)(b)---Assessee, an insurance company doing business of insurance other than life insurance---Interest accrued to assessee on Khas Deposit Certificate /and Defence Saving Certificates disclosed in annual account being part of its profits and gains was not exempted.

M/s. Central Insurance Company and another v. The Central Board of Revenue and others (1993) SCMR 1232 = 1993 PTD 766; CIT, Bombay v. New India Assurance Company Limited (1969) 71 ITR 761; Lakshami Insurance Company Limited v. CIT, New Delhi (1969) 72 ITR 474; Lakshami Insurance Company Limited, Lahore v. CIT, Punjab, Delhi 'and N.-W.F.P. Provinces, Lahore AIR 1950 Lah. 234; CIT v. National Insurance Company Ltd. (1986) 159 ITR 314; CIT, Karachi v. Alpha Insurance Company Limited and another PLD 1981 SC 293; M/s. Habib Insurance Company Ltd. v. CIT, (Central), Karachi PLD 1985 SC 109; CIT (Central), Zone-A, Karachi v. Phoenix Assurance Company Limited 1991 PTD 1028 and CIT, Karachi v. M/s. Queensland Insurance Company Limited, Karachi 1992 SCMR 539 ref.

(b) Constitution of Pakistan (1973)---

----Art. 25---Equal protection---Guarantee of equal protection applies against substantive as well as procedural laws more particularly these which are not formal in nature but substantially prejudicial to parties in establishing their rights or in defending against unjust claims.

Lachhuman Das v. State of Punjab AIR 1963 SC' 222 and State of Andhra Pradesh v. Raja Reddy AIR 1967 SC 1458 ref.

(c) Constitution of Pakistan (1973)---

----Art. 25---Equal protection---Doctrine of classification discussed.

Constitution of Islamic Republic of Pakistan by Muhammad, Munir, 1975 Edn quoted.

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

----(26 & Fourth Sched.---Constitution of Pakistan (1973), Art.25---Equal protection---Mere fact that some provisions in a statute did operate adversely to an assessee cannot be held to be violative of the equal protection.

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

----S. 134---Constitution of Pakistan (1973), Art.189---Appeal to Appellate Tribunal---Appellate Tribunal cannot declare a piece of legislation to be violative-of a Constitutional protection nor can it refuse to follow dictum laid down by the Supreme Court of Pakistan.

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

----Fourth Sched., R.5---"Adjustment" occurring in Fourth Sched., R.5, Income Tax Ordinance, 1979---Connotation---Assessing Authority has to apply an independent mind uncontrolled by Insurance Act, 1938 to arrive at such a readjustment---Application of independent mind means examination of the claimed expenditure and their treatment in the manner followed in other cases.

Commissioner of Income Tax Central, Karachi v. M/s. Alpha Insurance and others PLD 1981 SC 293; Chambers 20th Century Dictionary, 1983 Edn. and Black's Law Dictionary, 5th Edn. ref.

CIT Tamil Nadu-I v. United India Fire and General Insurance Co., Ltd. 140 ITR 994 and CIT, Bombay City-III v. Devkaran Nanjee Insurance Co. Ltd. (1977) 110 ITR 815 distinguished.

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

----Fourth Sched., R.5---Adjustment---Addition---Most of the additions out of the claimed expenses resulted on account of failure of the assessee to support these expenses by vouchers---Observations of the Assessing Officer regarding non-verifiability of the part of the expenses had not been challenged--?Held, whatever the implication of the word "adjustment" to restrict an Assessing Officer from asking for proper proof of the expenses and disallowing where these were not established would amount to allowing a licence to an assessee engaged in insurance business to claim whimsical expenses.?

(h) Words and phrases---

---- Words "adjust" and "adjustment"---Meaning.

Chambers 20th Century Dictionary, 1983 Edn. and Black's Law Dictionary, 5th Edn. ref.

Zia Ullah Kiyani for Appellant.

Abdul Rauf, D.R. for Respondent.

Date of hearing: 7th September, 1993,

ORDER

These four appeals by a listed Company deriving income from General Insurance business, assail three appellate orders rendered by AA.-C. Range-F, Lahore on 22-10-1985, 19-10-1985 arid 19-8-1992. The first order pertains to two assessment years viz. 1981-82 and 1982-83 while the other two relate respectively to the assessment years 1983-84 and 1991-92. The only grievances expressed in the first two years, that is 1981-82 and 1982-83 pertains to additions of Rs.94,658 and Rs.1,86,781 accrued as interest received from Khas Deposit Certificates, Defence Savings Certificates etc. and claimed to be exempt in view of the provisions contained in section 26(a) read with Fourth Schedule to the Income Tax Ordinance. In the said other two years viz. 1983-84 and 1991-92 some disallowances out of profit and loss account under various heads on account of their being unverifiable are being challenged. The contention of the appellant qua these disallowances is based upon the provisions contained in Rule 5(a) of the Fourth Schedule to the Ordinance as also certain judicial pronouncements relied upon.

2. The appellant company, as stated above derives income from dealing in fire, marine and miscellaneous insurance business. In the assessment year 1981-82, the company returned a loss of Rs.36,588 and in the year 1982-83 a loss of Rs.5,05,701. Instead it was assessed at an income of Rs. .69,034 and a loss of Rs.2,17,708 respectively. In the process the Assessing Officer disallowed a total sum of Rs.10,964 and Rs.95,698 claimed as management expenses in profit and loss account. However, these additions in the said two. years were neither contested before the first appellate authority nor these are in question before us. The only grievance in these two years relates to the additions of Rs.94,658 and Rs.1,86,781 earned as interest on Khas Deposits. Defence Savings Certificates etc. and claimed exempt from levy of tax. These amounts were refused exemption by the Assessing Officer and added towards total income in the following words which are relevant for both of the years: ---

"Exemption has been claimed on interest received from Khas Deposits, DSC & FDRs amounting to Rs.94,658. This exemption is not admissible under section 26 which states:

Notwithstanding anything contained in this connection--

(a) Profits and gains of any business of insurance... shall be computed in accordance with the rules contained in the Fourth Schedule.

The Fourth Schedule lays down that the profits from general insurance shall be taken to be the "balance of profits disclosed by the annual accounts required under the Insurance Act, 1938 (IV of 1938) to be furnished to the Controller of Insurance...:" subject to what is contained in sub-rules (a) and (b) of rule 5. Thus the starting point is the "balance of profits disclosed in the annual accounts" which includes return on securities. No exemption is admissible to any part of the receipt under Second Schedule as the provisions of section 26 overrides the entire Ordinance.

Keeping in view the above facts exemption claimed is disallowed and added to the income of the assessee Rs.94,658."

3. In the assessment year 1983-84 the company returned total income at Rs.15,644 after adjusting B/F loss for the assessment year 1982-83 at Rs.4,44,088. As many as seven additions of Rs.10,000, Rs.26,602, Rs.25,000, Rs.10,000, Rs.5,038, Rs.18,750 and Rs.25,000 respectively claimed in profit and loss account under the heads advertising expenses, entertainment, motor vehicle expenses, printing and stationery, sundary expenses, telephone expenses and travelling and conveyance were made which were claimed by the assessee respectively at Rs.62,192, Rs.1,26,602, Rs.2,82,540, Rs.94,880, Rs.5,038, Rs.1,25,012 and Rs.2,10,405. All the additions resulted on account of unverifiability of the claims made except in case of telephone expenses which were curtailed by 15% for non-business and personal calls.

4. In the assessment year 1991-92 the company returned an income of Rs.3,29,586. Assessment in this year was framed under section 62. As in the earlier year revenue accounts were accepted in accordance with Rule 5 of the Fourth Schedule to the Income Tax Ordinance, 1979. However, in this year again a total sum of Rs.2,91,305 was disallowed out of expenses claimed m profit and loss account under various heads. The assessee claimed expenses under the heads entertainment, motor vehicle, office maintenance, printing and stationery, Eidi, sundry expenses, telephone, travelling donation and perquisites to Chief Executive/Director respectively at Rs.2,28,665, Rs.4,46,222, Rs.30,697, Rs.1,69,490, Rs.1,965, Rs.1,882, Rs.215,123, Rs.1,86,751, Rs.13,254 and some perquisites exceeding 50% of the basic salary of the Chief Executive and a Director. The additions in these heads were respectively made at Rs.75,000, Rs.70,000, Rs.6,000, Rs.30,000, Rs.1,965, Rs.500, Rs.32,268, Rs.40,000, Rs.5,572 and Rs.30,000. The additions out of entertainment, motor vehicles, office maintenance, printing and stationery and travelling were made due to non-verifiability of part of the expenses claimed. Total sums allegedly paid as Eidi at Rs.500 and donation at Rs.5,572 were, however, added back on account of their inadmissibility under the Ordinance. In case of telephone expenses, these were curtailed by 15% for non-business and personal calls. The disallowance of Rs.30,000 was made for excessive perquisites to the Chief Executive and a Director by adding the amount received by them as bonus besides house rent allowance and utility etc. for the purpose of working out the maximum ceiling of perquisites allowable under the Ordinance. The addition was explained in the following words: ---

"It is pertinent to mention that for the purpose of section 24(1) salary includes bonus which is payable to an employee in accordance with term of his employment that is contractual bonus. In the case of director and chief executive bonus is paid to them as gratis payment and not in accordance with term of employment. In view of this bonus has been considered as benefit for the purpose of section 24(1)."

5. The learned first appellate authority through the first consolidated order rendered in the assessment years 1981-82 and 1982-83 confirmed the treatment meted out in respect of the interest income accrued on Khas Deposit Certificates, Defence Savings Certificates etc. on the ground that since the balance of profit disclosed by the appellant company in the annual account submitted to the Controller of Insurance included the income earned by way of profits and interest on Khas Deposits and Defence Savings Certificates though otherwise exempt under the Second Schedule, the exemption was rightly refused by the assessing officer. A reference to the provisions of section 26(a) was also made pointing out that the provisions contained in this section clearly and unequivocally laid down that the profit and gains of any business of Insurance and the tax payable thereon shall be worked out in accordance with Rules contained in the Fourth Schedule. The assessing officer, therefore, per first appellate authority, rightly held that tax had to be charged on the "balance of the profits disclosed by the annual accounts required under the Insurance Act, 1938 (IV of 1938) to be furnished to the Controller of Insurance.

6. Through the other two orders the learned first appellate authority confirmed the disallowances as detailed above while repelling the arguments that proper voucher and receipts for expenses claimed under the head "management expenses" were maintained and produced before the assessing officer in support of the claims. The first appellate authority also rejected the contention that the assessing officer could only make disallowances of expenses which were legally inadmissible and that the assessee company being engaged in Insurance business, the claimed expenses could not be restricted on the ground of their being excessive etc. It was also contended that any kind of restriction qua the aforesaid expenses claimed under various heads on account of "office management" could only be imposed by the Controller of Insurance and not by the assessing officer. The learned first appellate authority held the contentions to be devoid of any force for two reasons, firstly that the assessing officer could certainly examine the expenses claimed and, therefore, could legally make an appropriate order in spite of the assessee being a fisted company and engaged in Insurance business, and secondly, that even in earlier years (1981-82 and 1982-83 which are also subject-matter of this order only on the issue of disallowance of interest income) similar disallowances were made and were impliedly confirmed because the appellant-company did not press them before the first appellate authority. The learned appellate authority therefore, rejected the contentions against disallowances both on factual as well as legal premises with the following observations: ---

"In any case, the expenses disallowed by the department are only those which are not legally admissible. As laid down in clause (xviii) of subsection (1) of section 23 it is clearly mentioned that: --

`any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business or profession.'

In view of the foregoing the litmus test is that the expense in order to qualify for admissibility has to be laid out and incurred wholly and exclusively for purposes of business only. Since the ITO had rightly pointed out that some of the expenses were not exclusively relating to the business, the same were justifiably disallowed. There is also no merit in the contention of the appellant that the ITO could not restrict the management expenses and it was only the Controller of Insurance who could do so. The ITO was obviously well within his right to restrict the management expenses as the Law laid down in this behalf put such a restriction on the management and the ITO was siezed with the computation of income which had to be made after keeping in view of the factors in mind."

7. Before proceeding further the grievances of the appellant need to be spotted. It has two of them. First that interest income from Khas Deposits and Defence Savings Certificates being exempt in term of Item No.72 of Second Schedule read with section 14 of the Income Tax Ordinance could not be brought to the tax net notwithstanding the fact of the assessee being a company deriving income from General Insurance business whose gains and profits are to be taken which are disclosed by the annual accounts required to be furnished to the Controller of Insurance under the Insurance Act, 1938 (IV of 1938). The second grievance is that the "adjustments" contemplated in Rule 5 of the Fourth Schedule to the Ordinance do not allow the assessing officer to make any disallowance of an amount which is claimed by an assessee engaged in General Insurance business. In fact the complaint is that in absence of any restriction by the Controller of Insurance, the assessing officer could not make any of the disallowances ordered in the year 1983-84 and 1991-92. It is further contended that the assessing officer could disallow only that expenditure which was not an allowable deduction under the head "income from business or profession".

8. Parties have been heard. Mr. Ziaullah Kiyani, learned counsel for the appellant at the outset of the proceedings submits that he is conscious of a recent ruling of the Supreme Court of Pakistan rendered in the case of M/s. Central Insurance Company and another v. The Central Board of Revenue and others cited as 1993 SCMR 1232 = 1993 PTD 766 wherein the scope of sections 14, 17, 26 the Second Schedule item No.72 and Rule 5 of the Fourth Schedule to the Income Tax Ordinance came up for consideration. Learned counsel submits that the ratio of this case is not applicable to the facts before this Tribunal for a number of reasons. However, these alleged reasons are not crystalized. And, after having compared the facts in that case with those before us we have concluded that there is not an iota of difference between the two except for the question regarding reopening of the assessment in that case. The assessee in that case also claimed the interest accrued from Defence Saving Certificates and Khas Deposits to be exempt. Their Lordships noted that the assessee failed to demonstrate that these certificates were issued by the Federal Government with the condition that the interest thereon shall not be liable to tax. And, that the assessee had relied on item No.72 of the Second Schedule read with section 14 of the Ordinance. Before us the position is exactly the same as the assessee has not been able to produce any such notification, a situation noted by their Lordships in para. 13 & the said judgment. Therefore, the following from para. 12 of the said judgment is as much relevant in the case before us as it was in the matter adjudicated upon by their Lordships: ---

"In the present case, it is an admitted position that the assessee while submitting their accounts to the Controller of Insurance in Form B in terms of the Insurance Act, 1938, had shown the interest earned by them on Khas Deposit Certificates/Defence Savings Certificates during the assessment years in question and, therefore, it was part of profits and gains and, therefore, could be subject to tax. It is true that section 14 as well as section 26, contained non-obstante clause, but section 26, being a provision subsequent to section 14 and also being a special provision inter alia dealing with the working out of profits and gains of any business of insurance and the tax payable thereon read with Fourth Schedule, shall prevail."

Before the Supreme Court it was contended by the assessees that there was no conflict between the provisions of sections 14 and 26 and Item No.72 of the Second Schedule and Rule 5 of the aforesaid Schedule to the Ordinance and, therefore, the appellants were entitled to the benefit granted by Item No.72 of the Second Schedule pursuant to section 14 of the Ordinance on the amounts of interest received by them on Khas Deposit Certificates/Defence Savings certificates. In support of this contention reliance was placed upon reported cases from Indian Jurisdiction, namely CIT Bombay v. New India Assurance Company Limited cited as (1969) 71 ITR 761, Lakshami Insurance Company Limited v. CIT New Delhi (1969) 72 ITR 474, Lakshami Insurance Company Limited, Lahore v. CIT Punjab, Delhi and N.W.F.P. Provinces, Lahore, AIR 1950 Lah. 234 and CIT v. National Insurance Company Ltd. (1986) 159 ITR 314. Their Lordships repelled the contention by referring to a number of cases decided by the Supreme Court itself. A particular mention was made of cases titled, CIT Karachi v. Alpha Insurance Company Limited and another PLD 1981 SC 293, M/s. Habib Insurance Company Ltd. v. CIT (Central), Karachi PLD 1985 SC 109, CIT, (Central) Zone-A; Karachi v. Phoenix Assurance Company Limited 1991 PTD 1028 and CIT, Karachi v. M/s. Queensland Insurance Company Limited, Karachi 1992 SCMR 539. After comparing the provisions of section 10(7) of the Repealed Income-tax Act, 1922 read with Rule 6 contained in the First Schedule to that Act which correspond to section 26(a) read with rule 5 of the Fourth Schedule to the Ordinance, their Lordships concluded the matter by observing as under: ---

"The ratio of the above judgments of this Court seems to be that profit and loss accounts submitted by an insurance company under the Insurance Act, 1938, to the Controller of Insurance, are to be accepted and to be made basis for the purposes of computing profits and gains of insurance business and the amount of tax payable thereon in terms of section 10(7) read with Rule 6 of the First Schedule to the late Act. The above provisions have been treated as complete, self-contained and exhaustive to the exclusion of every other provisi6n not expressly incorporated, and, therefore, the other provisions relating to the working out of profits and gains and the amount of tax payable contained inter alia in section 8, 9, 10, 12 or 18 of the late Act, are not applicable in case of an insurance company except that by virtue of above rule 6, section 10 of the above Act has been brought back for limited purpose of adding back expenditure not permissible under the above section. The Income Tax Officer in face of the above statutory provisions is not competent to undermine the authenticity/finality of the accounts submitted by the assessee under the Insurance Act by ordinary rules for computation of profits and gains and for assessment of tax thereon in the light of other provisions of the late Act. But, his jurisdiction is limited to add back items of expenditure not admissible as above."

In the face of this latest decision of the Supreme Court the complaint of the appellant as far the inclusion and computation of the interest accrued on Khas Deposit and Defence Savings Certificates as part of its profits and gains is rejected.

9. As an alternate plea Mr. Ziaullah Kiyani submits that the treatment meted out to the assessee offends against the Constitutional protection of equality before law as also its entitlement to equal protection of law safeguarded through Article 25 of the Constitution of Pakistan. It is further submitted that while a number of other assessees are held entitled to the exemption allowed under Item No.72 of Second Schedule to the Income Tax Ordinance, its denial to the assessee has resulted into illegal discrimination against the assessee and the relevant provisions of Schedule Four to the Ordinance having violated the same are illegal qua the rights of the assessee. In technical word learned counsel assails the classification based upon the nature of the business of the assessee which is described to be devoid of any relation or nexus to the benefit of tax free income from the said certificates. In support of his contention that even if the provisions of Fourth Schedule are treated to be procedural one these still negate the guarantee of equal protection allowed by the Constitution he relies upon a reported case from Indian jurisdiction cited as Lachhuman Das v. State of Punjab cited as AIR 1963 SC 222. Another case from Indian jurisdiction re: State of Andhra Vardesh v. Raja Reddy, reported as AIR 1967 SC 1458 has also been referred to show that the provisions of the Fourth Schedule to the Ordinance offend the equality of citizens enshrined Article 25 of the Constitution of Islamic Republic of Pakistan.

10. There cannot be any second opinion about the proposition as affirmed by their Lordships of the Indian Supreme Court in the earlier cited case re: Lachhuman Das v. State of Punjab (Supra) that the guarantee of equal protection applies against substantive as well as procedural laws more particularly those which are not formal in nature but substantially prejudicial to parties in establishing their rights or in defending against unjust claims. F However, we do not find any support for the appellant in this decision. In para.22 of this order, their Lordships observed that prohibition against discriminatory legislation does not forbid reasonable classification and that for this purpose even one person or group of persons can be a class. In this case a joint Hindu family challenged certain provisions and the Rules framed under The Patiala Recovery of State Dues Act. The family was advanced some monies by Patiala State Bank in what it called "Demand Loan Account". On the failure of the family to repay the amount borrowed the Bank proceeded to take steps for recovery of the borrowed sum by issuing a certificate under section 7 of the said Act certifying that a certain sum was due from the appellants and asking the Deputy Commissioner, Patiala to recover the same as arrears of land revenue. Section 3 of the said Act defined "State Dues" as including debts due to Patiala State Bank. The appellant joint Hindu family challenged the vires and constitutionality of the recovery proceedings as arrears of land revenue, inter alia, on the ground that the Act and Rules framed thereunder were repugnant to Articles 14 and 19 (f) and (g) of the (Indian Constitution) and therefore, the proceedings taken under these provisions were illegal. It was contended that the proceedings prescribed for the determination of disputes under the Act and Rules is a special one widely different from that which is followed by Civil Courts in the cases of disputes between the customers and the banks other than the Patiala State Bank. The Indian Supreme Court, having held as stated above, dismissed the petitions on the ground that the provisions of the Act and the Rules as a whole were reasonable and not violative of rules of natural justice. Likewise in the other case relied upon by the learned counsel re: CIT, State of Andhra Pardesh v. Raja Reddy (Supra) the Court held that though Article 14 (which is equivalent to Article 25 of our Constitution) prohibits discrimination, its permit classification.

11: Doctrine of classification has been dealt with by Late C.J. Muhammad Munir in his commentary on "Constitution of Islamic Republic of Pakistan", 1975 Edition in these words which in turn is based upon reported cases of Superior Courts of Pakistan and India: ---

"It has always been the practice to supplement the body of general laws with special laws, namely, laws which apply to persons engaged in particular activities. And, since the effect of these special laws is to classify persons and things into different groups, the process by which such legislation is governed is called "classification". The process does not offend against the equal protection principle if the special law operates equally on all members of the same class or group. Equal protection, in its guarantee of like treatment to all similarly situated, permits classification which is reasonable and not arbitrary and which is based on substantial differences, having a reasonable relation to the objects or persons dealt with and to the public purpose sought to be achieved by the legislation involved. The equal protection clause does not forbid discrimination with respect to things that are different. All legislation involves classification, and from the earliest days classification has been made by Legislatures whereby some people have rights or civil burdens which others do not. The rule is well settled that a State may classify persons or objects for the purpose of legislation and pass laws applicable only to persons and objects within the designated class, according to the public object it has in view. What is prohibited is class legislation against some and favouring others. But to be valid, classification must be reasonable for the purpose of legislation, should be based on proper and justifiable distinction, should not be clearly arbitrary, nor should it be a subterfuge to shield one class or unduly to burden another. "The validity of classification", says Lord Rot Schaefer in his treatise on Constitutional Law, "thus depends on whether the legislature had reasonable grounds for its restriction of the class upon which burdens are imposed or benefits conferred. The usual objections to a classification made in connection with a regulation that imposes a burden is that it is invalid to limit the burden to the defined class and that, if a regulation of the given character is to be put into effect, it should be extended to others as well. The usual objection to such a classification in connection with a regulation that confers upon some persons benefits that are denied to others is that being violative of the equality provision it is invalid. The grant of benefits is frequently a part of a larger plan of regulation in which the benefit conferred consists of immunity from the burden. The second objection in such case is merely a different form of stating the first. The crucial point in any case involving the validity of a classification is the existence of differences in treatment between groups. The issue is as to the reasonableness of those differences, and the basis on which the classes are defined is relevant only so far as it bears thereon. There is, accordingly, no basis of classification that is invariably sustained."

Accordingly mere fact that some provision in a statute did operate adversely to the interest of an assessee cannot be held to be violative of the equal protection clause. Even otherwise in this case we do not find any specific provision which can be held to be violative of the safeguards contemplated in the Constitution. Fourth Schedule read with section 26(a) of the Ordinance, provides a specific mode of computation of the profits and gains of insurance business. It is only the interpretation of these rules by the superior Courts in this country, some of which have been discussed earlier, which resulted in denial of claim of exemption in respect of interest income from the abovesaid Government securities. To state it plainly it is not any specific provision of the Ordinance or any of its schedules that the assessee can complain against for denial of benefit allowed to other assessees but refused to it. The grievance of the assessee in other words is against the interpretation put on to these provisions by the superior Courts including Supreme Court of Pakistan, inter alia through aforesaid judgment in re: Central Insurance Co., Ltd. which ultimately resulted into the alleged discriminatory treatment towards it. Therefore, the objection of "unreasonable classification" is not against any particular provision of the Income Tax Ordinance and is accordingly misconceived. Even if it had been against any of the above-said provisions, the result would not have been different. The kind of declaration sought by the assessee is simply beyond the scope and purview of this Tribunal which is necessarily of a limited or exclusive jurisdiction. It cannot declare a piece of legislation to be violative of a Constitutional protection nor can it refuse to follow a dictum laid down by the Supreme Court of Pakistan for the alleged reason. The objection of the appellant qua unreasonable classification is, therefore, also rejected.

12. As regards his grievance against disallowances out of profit and loss account (management expenses) under the aforesaid various sub-heads Mr. Zia Ullah Kiyani has sought help from the above cited case re: Central Insurance Company. He maintains that the last two sentences of the above ?reproduced para from that case make it absolutely clear, that the Supreme Court did not favour allowing of an authority to the assessing officer to disallow sums claimed under the profit and loss account. According to him their Lordships visualized only add backs of expenditure not admissible under the provisions of Ordinance. We are, however, not inclined to accept, this contention as well. The said part of the judgment as reproduced above points out that provisions of section 10 of the late Act 1922 had been brought back for the purpose of adding back expenditure not permissible under the said section. The word "adjustment" as stated in Rule 5 of the Fourth Schedule to the Ordinance was one of the matters that was considered by the Supreme Court of Pakistan in re: Commissioner of Income Tax Central Karachi v. M/s. Alpha Insurance and others cited as PLD 1981 SC 293. This case was mentioned at length by their Lordships while deciding the case of M/s. Central Insurance Company (Supra). The conclusions drawn in that case were also reproduced by their Lordships in their order. Sub-para. (3) of para. 14 of that judgment treats the question before us in the following words: ---

"The power of the Assessing Authority under first part of rule 6 (ibid) to readjust the balance of the profits disclosed by the annual accounts required to be furnished under the Insurance Act, 1938 is restricted to "exclude from it any expenditure, other than expenditure" which may under the provisions of section 10 of the income Tax Act be allowed for in computing the profits and gains of a business. The Assessing Authority has to apply am independent mind uncontrolled by Insurance Act to arrive at such a re-adjustment."

To us this application of independent mind uncontrolled by the provisions of Insurance Act means examination of the claimed expenditure and their treatment in the manner followed in other cases.

13. In support of his submission Mr. Zia Ullah Kiyani has further relied upon the reported cases from Indian jurisdiction. In the first case re: CIT Tamil Nadu-I v. United India Fire and General Insurance Co., Ltd. 140 ITR 994 a Division Bench of Madras High Court rejected the claim of the assessee Insurance Company that the amount earlier declared in its accounts profit due to devaluation be excluded from assessment. The Court held that "the sum of Rs.4,58,049 forms very, much part of the balance of profits according to assessee's own annual accounts; that is how the accounts were submitted to the Controller of Insurance. The assessee having made its bed, must lie on it for good or bad, whether to dream an insurance, or keep awake on income tax". In the other case re: CIT, Bombay City-III v. Devkaran Nanjee Insurance Co. Ltd. (1977) 110 ITR 815 a Single Bench of the Bombay High Court allowed the plea taken by the assessee Insurance Company that the assessing officer was not justified in disallowing certain amounts when admittedly the full amount claimed as management expenses had in fact been expended by the assessee and that the expenditure was for its business purposes. In both of these cases, no finding was recorded which could help or support the proposition advanced before us. The first case is hardly relevant in any aspect while the second one clearly flows against the direction being suggested by the learned counsel for the appellant. In this case, as stated above, the claimed expenditure was admittedly actually incurred. The disallowance of a part of it with reference to .the provisions of another statute was held to be improper. The matter before us; however, is altogether different as the impugned disallowances resulted on account of failure of the assessee to establish them or to prove them by vouchers etc.

14. The word "adjust" according to Chambers 20th Century Dictionary, 1983 Edition means to put in due relation, to regulate to settle. According to Black's Law Dictionary, 5th Edition "adjust" means, to settle or arrange and free from differences or discrepancies". It also means to determine and apportion an amount due. Adjustment according to same dictionary means an arrangement, and settlement. The adjustment, settlement or apportionment of an expenditure can only happen if the assessing officer is allowed to weigh the claim on the touchstone of the proof and the evidence in support thereof. As stated in the

earlier part of this order, most of additions out of the claimed' expenses resulted on account of failure of the assessee to support these expenses by vouchers. The observations of the assessing officer regarding non?-verifiability of the part of the expenses has not been challenged before us. Therefore, under the circumstances of the case whatever be the implication of the word "adjustment", to restrict an assessing officer from asking for proper proof of the expenses and disallowing where these are not established would amount to allowing a licence to an assessee engaged in Insurance Business to claim whimsical expenses. This can, apparently never be the intention of the law nor can it flourish in practice. This kind of interpretation as made by the learned counsel for the appellant will negate the whole purpose of providing for special rules for the computation of profits and gains from Insurance Business as every Insurance Company will conveniently take back all the profits and gains that it declared to the controller through their circumvention in the administration expenses. The contention, accordingly being clearly misplaced, cannot be sustained.

15. In view of what has been said above, all the four appeals fail in toto.

M.BA./30/T.T. ???????????

Appeals dismissed.