Income Tax Ordinance (XXXI of 1979)---

----S. 20(1)(g)---Deduction---Income from house property---Expenditure incurred for collection of rent---Admissibility---Principles---Any expenditure incurred by the assessee for the purpose of collecting the rent, even if the expenditure was incurred on his own person, is admissible ---Assessee, however, will not be entitled to claim any compensation for the time consumed or inconvenience suffered in connection with the collection of the rent.

Clause (g) of subsection (1) of section 20 of the Income Tax Ordinance provides that in computing income from house property any expenditure (not exceeding six per cent. of the annual value) incurred by the assessee for the purpose of collecting the rent of the property shall be deducted. Clause (g) does not restrict the incurrence of the expenditure for the purpose of collecting the rent of the property by an assessee only to the situation where he/she employs someone and pays him for collecting the rent of the property. The clause, as worded, would include the deduction of any expenditure incurred by the assessee for the purpose of collecting the rent even if the expenditure was incurred on his own person. Of course, the assessee will not be entitled to claim any compensation for the time consumed or inconvenience suffered in connection with the collection of the rent. Thus, if an assessee, for instance, travels from Islamabad to Lahore to collect the rent of his property nothing prohibits him from deducting the expenses incurred by him in connection with the journey in computing his income from house property. The deduction of the expenditure in that context shall be allowed in the same manner as to a person deriving income from business or profession who personally incurs any expenditure on travelling in connection with his business.

In the present case the Appeal Commissioner had disallowed the deduction for the reason that there was no justification for the assessee to come to Pakistan to collect the rent when in executing the lease agreement and receiving the rent she had been acting through her attorney. The Appeal Commissioner's reason amounts to interfering with assessee's affairs. An assessee is entitled to manage his own affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provision of law, cannot be challenged on the ground of prudence, advisability etc. Whether the assessee performed the journey from the United States of America to Pakistan for the purpose of collecting rent or not, will be a question of fact but as a principle of law if it is proved that she undertook the journey, for collecting the rent, she will be entitled to claim deduction of the expenditure she incurred in connection with the said journey. The Tax Authorities could not reject the claim on the ground that why she undertook an expensive adventure when she could obtain the same results through her attorney without incurring the expenditure. Besides that the assessee claimed that she, herself had signed the extension of lease agreement and received the rent on that account. The Tax Authorities thus could not have rejected her claim on the ground of prudence. Nothing in law or practice debars the principal to do any act personally notwithstanding that he has appointed an attorney to do that act on his behalf.

PLD 1992 SC 562 = 1992 PTD 954 fol.

Nemo for Appellant.

Nasir Hussain, D.R. for Respondent.

Date of hearing: 10th April, 1995.

ORDER

CH. IRSHAD AHMAD (JUDICIAL MEMBER). ---The assessee, a non-resident individual, derives income from house property. In her return of income filed under the Self-Assessment Scheme for the assessment year 1990-91 the assessee declared net income at Rs. 1,90,925 which was computed as under: -

The Assessing Officer did not allow the assessee to deduct the sum claimed as collection charges from the annual value of the property for the reason that "proof of collection charges has not been furnished on the plea that none was kept". Before the Appeal Commissioner the deduction on account o collection charges was claimed on the plea that the assessee who resides in the U.S.A. had come to Pakistan to collect the rent and the claimed expenditure was a part of her travelling expenses. The Appeal Commissioner found that the explanation was not convincing. He remarked that the assessee has mostly beer acting through her attorney. The lease agreement, the return of income and wealth statement etc. all had been signed and filed by her attorney Thus it is no understood as to why the attorney who was present in Pakistan could not receive the rent from the tenant and save the assessee from undue expenditure and botheration. The Appeal Commissioner thus felt that the assessee could not have visited Pakistan with the sole object of receiving the rent.

Through this appeal the assessee has objected to the orders of the tax authorities on the ground that they were not justified in rejecting her claim of deduction on account of collection charges for the reasons given in their orders. It is also contended that the assessee herself had signed the extension of lease agreement and had received the cheque. It is further contended that the assessee's attorney was also a non-resident residing in the U.S.A.

None has appeared on behalf of the assessee in spite of the fact that the notice of the hearing of appeal has been served upon her through authorised representative. Mr. Nasir Hussain, D.R. has been heard.

The learned D.R. contended that an assessee deriving income from house property is not entitled to deduct any sum expended for the purpose of collecting the rent of the property unless he employs someone and incurs the expenditure by paying to the employed person for the services rendered in connection with the collection of the rent. The amount expended by an assessee on her own person cannot, the D.R. asserted, be allowed to be deducted as collection charges under clause (g) of subsection (1) of section 20 of the Income Tax Ordinance, 1979.

Clause (g) of section 20 of the Income Tax Ordinance provides that in computing income from house property any expenditure (not exceeding six per cent. of the annual value) incurred by the assessee for the purpose of collecting the rent of the property shall be deducted. Clause (g) does 'rot restrict the incurrence of the expenditure for the purposes of collecting the rent of the property by an assessee only to the situation where he/she employs someone and pays him for collecting the rent of the property. The clause, as worded, would include the deduction of any expenditure incurred by the assessee for the purpose of collecting the rent even if the expenditure was incurred on his own person. Of course, the assessee will not be entitled to claim any compensation for the time consumed or inconvenience suffered in connection with the collection of the rent. Thus, if an assessee, for instance, travels from Islamabad to Lahore to collect the rent of his property nothing prohibits him to deduct the expenses incurred in connection with the journey in computing his income from house property. The deduction of the expenditure in that context shall be allowed in the same manner as to a person deriving income from business or profession who personally incurs any expenditure on travelling in connection with his business or travelling.

The Appeal Commissioner has disallowed the deduction for the reason that there was no justification for the assessee to come to Pakistan to collect the rent when in executing the lease agreement and receiving the rent she has been acting through her attorney.- The Appeal Commissioner's reason amounts to interfering with assessee's affairs. The Supreme Court of Pakistan in C.I.T. v. Pakistan Industrial Engineering PLD 1992 SC 562 = 1992 PTD 954 has held that an. assessee is entitled to manage his own affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provision of law cannot be challenged on the ground of prudence, advisability etc. Whether the assessee performed the journey from the United States of America to Pakistan for the purpose of collecting rent or not, will be a question of fact but as a principle of law if it is proved that she undertook the journey for collecting the rent she will be entitled to claim deduction of the expenditure she incurred in connection with the said journey. The Tax Authorities cannot reject the claim on the ground that why she undertook an expensive adventure when she could obtain the same results through her attorney without incurring the expenditure. Besides that the assessee claims that she herself had signed the extension of lease agreement and received the rent the Tax Authorities could not have rejected her claim on the ground of prudence. Nothing in law or practice debars the principal to do any act personally notwithstanding that he has appointed an attorney to do that act on his behalf. Since the Tax Authorities have not examined the case in the light of the above observations we would like to set aside the orders of the Tax Authorities and remit the case to the Assessing Officer to re-examine the admissibility of the deduction on account of the collection charges in the light of the above observations. The assessee's appeal is allowed.

M.B.A./197/Trib.???????? ?????????????????????????????????????????????????????????????????????? Appeal allowed.