I.T.AS. NOS. 189/LB TO 198/LB OF 1988-89, DECIDED ON 23RD FEBRUARY, 1995. VS I.T.AS. NOS. 189/LB TO 198/LB OF 1988-89, DECIDED ON 23RD FEBRUARY, 1995.
1996 P T D (Trib.) 205
[Income-tax Appellate Tribunal Pakistan]
Before Nasim Sikandar, Judicial Member and Khalid Mahmood, Accountant
Member
I.T.As. Nos. 189/LB to 198/LB of 1988-89, decided on 23/02/1995.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 134---Appeil to Appellate Tribunal---Mere fact that appellate order had been given effect to, could not non-suit the department (Appellant)---Till the time appeal was pending before Appellate Tribunal the issue is wide open and could not be said to have been closed---All acts done subsequent to the filing of appeal before Appellate Tribunal were subject to the result of such appeal irrespective of the implementation of the impugned order which the Assessing Officer was otherwise obliged to do--Contention that Assessing Officer having implemented the impugned order, appeal in question had become infructuous was repelled.
(b) Income Tax Ordinance (XXXI of 1979)---
---S. 31(1)(b) & Second Sched. Cl. 103(a)---Cooperative Society-- Exemption---Income from other sources---Interest income---Expenditure incurred wholly and exclusively for the purpose of earning such income-- Deductions---Deductions contemplated under S.31 (1)(b), Income Tax Ordinance, 1979 are only those which have been laid out or expended wholly and exclusively for the purpose of earning such income---Where no expense whatsoever was claimed to have been made wholly and exclusively for the purpose of earning such income, Assessing Officer, "I very rightly disagreed with the submission that total expenses of the Cooperative Society should be bifurcated in proportion of taxable and exempt income of the Society or to allow appropriate expenses to taxable income.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 31(1)(b)----Income from other sources---Deductions---Expenditure incurred wholly and exclusively for purpose of earning income-x-Burden of proof---Question whether the expenditure was laid out or expended wholly or exclusively for the purpose of earning income is, essentially a. question of fact and the burden to prove that it was so laid or expended, is on the assessee.
J.K. Woollen Manufacturers (Pvt.) Ltd. v. CIT (UP) = 1969 PTD 7 and (1960) 2 Tax (Supplement) 126 ref.
ITA Nos. 3381 to 3391 of 1984-85 distinguished.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 31(3) & 24---Income from other sources---Application of S.24 on deductions from other sources as in case if income from business and profession---Deductions---Provision of S.31(3), Income Tax Ordinance, 1979 refers to and makes the provision of S.24, Income Tax Ordinance, 1979 applicable to the allowances and deductions as they apply to allowances and deductions in respect of income chargeable under the head "income from business and profession".
(e) Review--
---- Considerations to be kept in view
In considering whether the earlier decision was clearly erroneous, the considerations to be kept in mind are whether on the earlier occasion, did some patent aspects of the question involved remain unnoticed, or was the attention of the Court not drawn to any relevant or material statutory provision, or was any previous decision of the Court having bearing on the point not noticed.
Pillani Investment Corporation Limited v. Income Tax Officer, Calcutta and another 1972 83 ITR 217 ref.
(f) Precedent--
----Patent aspect of the question involved in case before the Tribunal remained unnoticed in the precedent case---Deviation of Tribunal from the view taken in precedent case was justified in circumstances.
Pillani Investment Corporation Limited v. Income Tax Officer, Calcutta and another 1972 83 ITR 217 ref.
(g) Precedent---
----Applicability---Principles.
A precedent is an adjudged case or decision of a Court considered as furnishing an example or authority for an identical or similar case. Every judgment must be read as applicable to the particular facts proved and assumed to be proved, since the generality of the expressions which maybe found there are not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. A case is only an authority for what it- actually decides and that it cannot be quoted for a proposition that may seem to follow logically from it.
Black's Law c Dictionary; Pakistan Fisheries Limited, Karachi and others v. UBL etc. PLD"1993 SC 109; Mst. Iqbal Begum v. Farooq Inayat and others PLD 1993 Lah. 183; Lord Halsbery L.C. in Quiun v. Leathern (1901) AC 495 at 506 and Syed Ghayyur Hussain Shah and another v. Gharib Alam PLD 1990 L.A. 432 ref.
(h) Income Tax Ordinance (XXXI of 1979)---
----S. 31(1)(b)---Income from other sources---Expenses incurred wholly and exclusively for purpose of income ---Deductions---Interest income ---Assessee had never made an express claim of a particular kind of expense to have been expended wholly and exclusively for the purpose of earning of interest income---No definite sum having been claimed and no specific head pointed out, question of its examination by the department, held, did not arise---Assessing Officer was therefore right in disallowing the claim
(i) Income Tax Ordinance (XXXI of 1979)---
----Ss. 31 & 24---Income from other sources---Interest income---Words "wholly and exclusively for the purpose" occurring in S.31(1)(b) Income Tax Ordinance, 1979---Connotation---Word "purpose"---Meaning---Expense incurred wholly and exclusively for purpose of income---Deductions---Interest income---An expense to be allowed in case of assessment of income from other sources has to be established in terms of S.31, read with S.24, Income Tax Ordinance, 1979---Such expense must have been laid out or expended strictly with the object of earning of the income against which it is being claimed-- Expenses against interest income---Claimant as well as the Assessing Officer allowing the expense must make out a case that the interest income could not have been achieved, or at least facilitated, wholly or partly, if the claimed expenses had not been incurred.
An expense to be allowed in case of assessment of income from other 'sources has to be established in terms of section 31 read with provisions of section 24 of the Ordinance. The stress of the legislature on the words "wholly and exclusively for the purpose of" must be kept in mind. The use of word "purpose" in subsection (b) of section 31(1) of the Ordinance qualifies the early phrases "wholly and exclusively". It means that an expense must have been laid down or expended strictly with the object of earning of the income against which it is being claimed. In case of an expense claimed against interest income the claimant as well as the Revenue Officer allowing the expense must make out a case that the interest income could not have been earned or at least facilitated, wholly or partly, if the claimed expenses had not been incurred.
Qaiser M. Yahya, D.R. for Appellant.
Sirajuddin Khalid for Respondent.
Date of hearing: 7th February, 1995.
ORDER
These departmental appeals for the assessment years 1976-77 to 1985-86 assail a common order recorded by CIT(A), Zone-II, Lahore on 18-4-1988. The only grouse appears to be a direction of the first appellate authority to allow 10% overhead expenses in respect of income derived by the Society as interest from Bank Deposits.
2. The assessee-respondent is a Cooperative Society. Original assessments in its case were finalized on 23-6-1986 rejecting the plea that income, profit and gains derived from dealings with its members should not be taxed. The first appellate authority, in the earlier round of litigation between the parties allowed the contention and directed that exemption should be allowed to the income of the society derived from admission fee, demarcation fee, maintenance cess, transfer fee etc., on account of its being income derived from dealing with members and, therefore, covered by (at the relevant time) explanation to sub-clause (a).of clause (103) of the Second Schedule to the Ordinance. Besides, the abovementioned income, the assessee also derived interest income from deposits with the Banks. Learned first appellate authority by way of the above said order also directed that such income may be assessed to tax but reasonable expenses should be allowed out of interest income and the assessment made accordingly. On this point the assessment was set-aside in all the years under review and the case remanded with the above direction. On remand the assessing officer while framing assessment under section 62/132 of the Ordinance again rejected the plea of the assessee that total expenses of society should be bifurcated in the proportion of taxable and exempt income and proportionate expenses to taxable income be allowed. This claim was statedly made under section 31(1)(b) of the Ordinance which reads "any expenditure (not being in the nature of capital expenditure or personal expenditure of the assessee) laid out or expended wholly and exclusively for the purpose of earning such income". The assessing officer required the assessee to establish its claim that the expenses were expended wholly and exclusively for the purpose of earning interest income. It was, as per assessment order, admitted that claimed expenses were not expended wholly and exclusively for the earning of interest income. The other reason which weighed with the assessing officer was that the expenses borne by the assessee related to the income earned from the Members which was otherwise exempt as per clause (103) of the Second Schedule to the Ordinance. Learned first appellate authority by way of the impugned order allowed the claim with the remarks which need to be reproduced in order to understand the exact finding:
"It was claimed that the Income Tax Officer should have allowed proper expenditure under the law while determining the income from this source. In the case of Lahore Cantonment Cooperative Housing Society Limited Lahore 10% of overhead expenses were allowed by the CIT (Appeals) against such income on the plea that unless funds were mobilized after meeting certain overhead expenses no surplus fund could be available and interest income could be earned and this treatment accorded by the CIT(Appeals) was upheld by the learned Tribunal vide I.T.A. Nos. 3381 to 3391 of 1984-85, dated 31-3-1986. Keeping that in view the I.T.O. is directed to allow 10% of the overhead expenses claimed in all the years under appeal when computing income from this source."
This has grieved the department.
3. Parties have been heard. Learned A.R. for the assessee as a preliminary objection contends that the assessing officer has implemented the impugned order and, therefore, the appeals in question have become infructuous. We are, however, not in agreement with the submission. Mere fact that the appellate order has been given effect cannot non-suit the department. As long these Appeals are pending the issue is wide open and cannot be said to have dosed. All acts done subsequent to the filing of these appeals are subject to the result of these appeals irrespective of the implementation of the impugned order, which the assessing officer was otherwise obliged to do.
4. Learned D.R. contends that the order of the first appellate authority, a portion of which has been reproduced above, is inappropriate in the circumstances because this Tribunal rejected the appeal filed by the appellant cooperative society in that case whereby they wanted a further raise in the expenses allowed. Relevant portion of para. 19 recorded by this Tribunal on 31-3-1986 in I.T.As. Nos. 3381 to 3391 of 1984-85 (assessment years 1976-77 to 1978-79) is reproduced as under:
"In regard to expenses against the interest income the CIT(A) has stated that some expenditure has to .be allowed out of the total overhead expenses incurred by the society as expenditure to earn the interest income from deposits in the banks. The assessee's plea that the deposits of money in the banks and getting interest thereon should not be treated as an isolated function was accepted by the C.I.T.(A) and he agreed that part of the overhead expenses were incurred by the society to earn interest income. Not agreeing with the I.T.O. he allowed 10% of the overhead expenses against the interest income. For example, for the assessment year 1983-84 the I.T.O. had assessed the gross interest income of Rs.14,35,263 against which the C.I.T.(A) had allowed 10% of overhead expenses of Rs.20,45,035 including depreciation of Rs.66,855. The expenses allowed at 10% of the overhead expenses, in our view, are fair and the plea that the expenses allowed are inadequate or illegal is devoid of any merit and is rejected."
Learned D.R. also submits that the assessee having admittedly failed to point out any item of expenditure to have been made or laid out wholly and exclusively for the purpose of earning of interest income the relief allowed by the first appellate authority was clearly inappropriate.
5. Learned A.R. for the assessee, on the other hand, supports the order of the appellate authority and submits that this Tribunal having already allowed the expenses in one case the present assessee cannot be discriminated against on this account. He also contends that the aforesaid order of this Tribunal being that of a Division Bench is binding unless the order was patently illegal.
6. After hearing the parties we find ourselves in complete agreement with the submissions made for the revenue. Firstly, the deductions contemplated under section 31(1)(b) of the Ordinance are only those which have been laid out or expended wholly and exclusively for the purpose of earning such income. No expense whatsoever was claimed to have been made wholly and exclusively for the purpose of earning of such income. The assessing officer very rightly disagreed with the submission that total expenses of the society should be bifurcated in proportion of taxable and exempt income of the society or to allow appropriate expenses to taxable income. The Allahabad High Court in Re: J.K. Woollen Manufacturers (Pvt.) Limited v. C.I.T. (U.). =1969 PTD 7 held that the question whether the expenditure was laid out or expended wholly or exclusively for the purpose of earning income is essentially a question of fact and the burden is on the assessee to prove that it was so laid or expended. Subsection (3) of section 31 of the Ordinance refers to and makes the provisions of section 24 of the Ordinance applicable to the allowances and deductions as they apply to allowances and deductions in respect of income chargeable under the heads "income from business and profession". A Division Bench in 1991 PTD 252 re: CIT v. Hindustan Electrographites Limited, held that interest on fixed deposit and late payment of call: money received from prior setting up of business was rightly disallowed as no findings that these receipts were directly related to a particular item of expenditure were recorded. The assessee in that case was a Public Limited Company and established for manufacture and production of electrographites. During the accounting period relevant to the assessment year 1978-79 the assessee derived interest on fixed deposit and on late payment of call money. The assessing officer found these amounts to be taxable but on appeal the first appellate authority held that interest income for the relevant four months before commencement of production was not taxable. The revenue thereupon preferred an appeal before the Tribunal which was dismissed. On a reference the learned Judges of Madya Pradesh High Court disagreed with the findings recorded by the Tribunal: They remarked, "it is true that the rules of accountancy require that where a particular item of miscellaneous income can be, related to a particular item of expenditure, then it should be set off against the expenditure and that any amount of expenditure should be treated in an appropriate manner depending upon its being in accordance with principles of accountancy. In the instant case, however, the Tribunal has not found that the income earned by the assessee as interest on fixed deposit and late payment of call money is related to a particular item of expenditure. In our view in the, absence of any finding that interest on fixed deposit and interest for late payment of call money was directly related to a particular item the Tribunal was not justified in holding that the interest income received by the assessee on fixed deposits and on late payment of call money was not taxable as the assessee's income.
7. Coming to the stress of the learned counsel for the assessee on the aforesaid alleged ratio emerging from the order recorded by this Tribunal on 31-3-1986 again we are unable to accept the submission. The relevant portion as reproduced above without an iota of doubt is not a statement of law as for the proposition before us is concerned. The appellant-cooperative society in that case was allowed 10% of overhead expenses after adjustment against interest income, the relief with which the assessee felt dissatisfied and approached this Tribunal for further relief. The prayer for enhancement it relief was refused. The exigibility of the expenses against interest income was neither mooted before the Tribunal nor it was relied upon. The other submission of the learned counsel before us that the revenue having not raised an objection against allowing of 10% expenses against interest income it was estopped from contesting relief allowed in the present case is also untenable at law. As said above, the revenue was not in appeal in that case and, therefore, the allow ability of the expenses was neither raised nor discussed. Even if it had been so, we do not see how it could create a kind of estoppel against the revenue or to estop it for ever from raising this contention in any subsequent proceedings with regard to other assessees. There is no estoppel against law nor the findings in the aforesaid case created any kind of res Judicata against the revenue. In a case reported as (1960) 2 Tax (Supplement) 126, inter alia it was held by this Tribunal that the onus of establishing that a particular expense was wholly and exclusively for the purpose of such business was clearly on the assessee, This condition will have to be satisfied in every case.
8. The emphasis of the learned counsel on the aforesaid order of this Tribunal motivated by the desire to make us accept that the alleged ratio is binding upon us. Although, he has not cited a specific decision in support of his submission, yet ---obviously his contention is that unless an earlier decision is clearly illegal or inappropriate, it is binding upon a Bench of equal strength in subsequent sitting on the same issue. In Pillani Investment Corporation Limited v. Income Tax Officer, Calcutta and another (1972) 83 IM 217 the Supreme Court of India declined to review an earlier decision and laid down the criterion applicable in such situation. Their Lordships observed that in considering whether the earlier decision was clearly erroneous, the considerations to be kept in mind are whether on the earlier occasion, did some patent aspects of the question involved remain unnoticed, or was the attention of the Court not drawn to any relevant or material statutory provision, or was any previous decision of the Court having bearing on the point not noticed. As observed earlier, the finding as recorded in the reproduced para did not amount to a precedent in any sense of the term. Even if for argument sake it is so accepted, the three conditions laid down by the Full Bench in the aforesaid Indian case will justify a deviation inasmuch as the patent aspect of the question of allowing of expense against interest income remained unnoticed.
9. A precedent according to Black's Law Dictionary is an adjudged case or decision of a Court considered as furnishing an example or authority for an identical or similar case. In two recent decisions, one by the Supreme Court PLD 1993 SC 109 Re: Pakistan Fisheries Limited, Karachi and others v. U.B.L. etc., and the others by Lahore High Court PLD 1993 Lah. 183 re: Mst. Iqbal Begum v. Farooq Inayat and others following observations of Lord Halsbery L.C. in Quiun v. Leathern (1901) A.C. 495 at 506 have been reproduced with favour: ... One is.... that every judgment must be read as applicable to the particular facts proved and assumed to be proved, since the generality of the expression which may be found there are not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expression are to be found. The other is that a case is only an authority for what it actually decides...." His Lordship F. Lal Karim, J. in PLD 1990 Lah. 432 re: Syed Ghayyur Hussain Shah and another v. Gharib Alam observed in similar terms that every judgment must be read as applicable to particular facts proved or assumed to be proved and that the generality of the expressions which may be found in the judgment are not intended to be exposition of the whole law but governed and qualified by the particular facts of the case in which such expressions are to be found. His Lordship further reiterated that a case is only an authority for what it actually decides and that it cannot be quoted for a proposition that may seem to follow logically from it.
10. The refusal of this Tribunal in the earlier case to allow an enhancement in the expenses allowed against interest income by the first appellate authority can by no means be taken as an authority to allow at least 10% expenses against interest income and, therefore, applicable to the facts and circumstances before us. The revenue has contested before us the allow ability of these expenses and, the aforesaid provision of law supports the stand taken by the revenue unequivocally. The assessee never made an express claim of a particular kind of expense to have been expended wholly and exclusively for the purpose of earning of interest income. Since no definite sum was claimed and no specific head was pointed out the question of its examination by the authorities below could not arise at all. The assessing officer very rightly disallowed the claim. Learned first appellate Authority by way of the impugned order clearly erred in allowing the round sum of expenses against interest income on the alleged authority of a decision of this Tribunal. It may also be reiterated that an expense to be allowed in case of assessment of income from other sources has to be established in terms of section 31 read with provisions of section 24 of the Ordinance. The stress of the legislature on the words "wholly and exclusively for the purpose" must be kept in mind. The use of word "purpose" in subsection (b) of section 31(1) of the Ordinance qualifies the early phrase "wholly and exclusively". It means that an expense must have been laid out or expended strictly with the object of earning of the income against which it is being claimed. In case of the kind before us while considering an expenses claimed against interest income the claimant as well as the Revenue Officer allowing the expense must make out a case that the interest income could not have been achieved or at least facilitated, wholly or partly, if the claimed expenses had not been incurred.
11. None of the qualifications as contemplated by law having been answered, the claim of a round expense and its allowance as a deduction was I" clearly inappropriate and illegal in the circumstances of the case. We will, therefore, allow these departmental appeals by setting aside the first appellate order in so far as the allowing of 10% of expenses against interest income is concerned. The order of the assessing officer to that extent, therefore, shall stand restored.
M.BA./143/T
Appeal allowed.