COMMISSIONER OF INCOME-TAX, COMPANIES-II, KARACHI VS MESSRS INSTRUMENTS KRAFTS (PVT.) LTD.
1995 P T D 612
[Karachi High Court]
Before Mamoon Kazi and Abdul Latif U. Qureshi, JJ
COMMISSIONER OF INCOME-TAX, COMPANIES-II, KARACHI
Versus
Messrs INSTRUMENTS KRAFTS (PVT.) LTD.
Income Tax Case No.172 of 1990, heard on 06/12/1994.
Income-tax Act (XI of 1922)---
----S. 10(2)(xv)---Assessee,. a contractor failed to supply goods within stipulated time and according to the agreement Authorities deducted 4% of total consideration of contract from the assessee's amount---Such deduction of 4% being directly connected with the business carried on by the assessee, same was permissible expenditure under S. 10(2)(xv) of the Income-tax Act, 1922.
Central Trading Agency v. Commissioner of Income-tax (1975) 32 Tax 104 rel.
Shaikh Haider for Appellant.
Nemo for Respondent.
Date of hearing: 6th December, 1994.
JUDGMENT
MAMOON KAZI, J.---Although none is present on behalf of the respondent, but even on the last date of hearing of the case i.e., on 11-10-1994 none had appeared on the respondent's behalf. We, therefore, do not find it necessary to adjourn the case on account of the absence of the learned counsel for the respondent.
So far as facts of the case are concerned, it appears that the assessee (respondent) had executed a contract with K.E.S.C. According to the terms of the said contract, in case the respondent failed to supply the goods within a stipulated date, 4% of the total consideration was to be deducted from his bill. The respondent claimed such deduction as admissible in the profit and loss account but the same was died by the I.T.O. The respondent appealed against the decision of the I.T.O. to the Commissioner of Income-tax (Appeals) and the appeal was allowed. The Department's appeal to the learned Appellate Tribunal was also dismissed. Under the circumstances the following question has been referred to us for determination:--
"Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in holding that the addition made on account of breaking of contract was illegal?"
Mr. Shaikh Haider learned counsel for the Department has very fairly invited our attention to a decision of the Allahabad High Court in the case of Central Trading Agency v. Commissioner of Income Tax (1975) 32 Tax 104 wherein it was held that in case the payment under consideration was made not as a penalty or as damages for breach of contract, but merely in fulfilment of the condition agreed to between the parties enabling the assessee to fulfil the contract and earn profits therefrom upon making the payment, though it was described as liquidated damages; it was a payment directly connected with the business carried on by the assessee and was a permissible deduction under section 10(2)(xv) of the Income-tax Act.
Since in the present case the deduction claimed by the respondent was a payment directly connected with the business carried on by the respondent, we are clearly of the view that the same was permissible under section 10(2)(xvi) of the Income Tax Act, 1922. Consequently, in our view, the above decision of Allahabad High Court fully applies to the facts of the present case.
In the result, we answer the question in the affirmative.
M.BA,/C-333/K ???????????????????????????????????????????????????????????????????????????????? Question answered.