COMMISSIONER OF INCOME TAX, RAWALPINDI VS PAK. MINERAL INDUSTRIES LTD., RAWALPINDI
1996 P T D 1108
[Lahore High Court]
Before Malik Muhammad Qayyum and Ahmad Saeed Awan, JJ
COMMISSIONER OF INCOME TAX, RAWALPINDI
Versus
PAK. MINERAL INDUSTRIES LTD., RAWALPINDI
Civil Tax Reference No. 23 of 1977, decided on 11/03/1996.
Income-tax Act (XI of 1922)---
----S.10(2)(xvi)---Business expenditure ---Addition---Assessee, a managing agent of an industrial concern ---Assessee foregoing the remuneration after it had accrued to it for which it was entitled under the mutual agreement ---Effect-- Held, subsequent disposal of remuneration or income was not admissible in law and was liable to be added back for assessment purpose---As the income had accrued to the assessee much prior to the resumption to forego remuneration it was to be taxed in the hands of the department ---Assessee, was thus precluded to forego the commission after it had accrued to him.
(1960) 2 Taxation 207; (1962) 2 Taxation 293; and Morvi_ Industries Ltd. v. Commissioner of Income Tax, Central Calcutta (Taxation India, September, 1964, p. 37) ref.
Muhammad Ilyas Khan for Petitioner.
Hamid Shabbir on behalf of Raza Karim for Respondent
Date of hearing: 11th March, 1996
JUDGMENT
AHMAD SAEED AWAN, J.---This reference under section 66(1) of the Income-tax Act, 1922, made at the instance of Department, the Income Tax Appellate Tribunal has referred the following question of law to this Court for opinion:---
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the remuneration of Rs.42,000 and Rs.21,000 foregone by the assessee after this had already been accrued for the assessment years 1963-64 and 1964-65 respectively were admissible expenses under section 10(2)(xvi)?"
2. This reference pertains to the Assessment years 1963-64 and 1964-65; the material facts of the case are that the respondents were Managing Agents of 1vI/s. Pak Cement Industries; according to the Managing Agency Agreement was entitled to remuneration of Rs.3,500 per month and also commission of 7.50% on net profit. The remuneration for the first year ending on 31-12-1962 were not shown by the assessee while remuneration for a period of 6 months for the next year closing on 31-12-1963 were also not shown on the ground that by a resolution, dated 12-5-1963, the respondents had decided to forego their remuneration till 30-6-1963 as the company had not yet gone into working. The Income Tax Officer observed that the respondents remuneration amounting to Rs.42,000 and Rs.21,000 had accrued before it was foregone and had become taxable at the stage of accrual. Aggrieved by the order of the Income Tax Officer, the respondent filed appeals against the said order; the Appellate Assistant Commissioner deleted -the additions against which the Department filed appeals before the Income Tax Appellate Tribunal; the learned Tribunal upheld the order of the Appellate Assistant Commissioner and dismissed the Departmental appeals, hence this reference under section 136(1) on the application of the Department has been referred for opinion.
3. We have heard the learned counsel for both the sides at length and it is an admitted fact that the assessee/respondent voluntarily decided to forego the commission for the period from 1-1-1963 to 30-6-1963 and remuneration had accrued to them before the same was foregone. The learned Tribunal while dismissing the appeal of the Department relied upon decision reported as 1960-2 Taxation India Vol. 3 page 207 and 1962-2 Taxation page 293 wherein it was observed that even if the profits were foregone after the close of the year but before these actually become the income of the respondent, the same could not be treated as real income of the respondent. At best it could be treated as fictional income. While on the other hand in case Morvi Industries Limited v. Commissioner of Income Tax Central Calcutta, Taxation India page 37 it was held that subsequent disposal or remuneration of income is not admissible in law and is, therefore, added back for assessment purposes. As the income had accrued to the respondent much prior to the resumption to forego remuneration was to be taxed in the hands of the department. The assessee is precluded to forego the commission after it had accrued to him as held in Morvi Industries Limited v. Commissioner of Income Tax Central Calcutta, (Taxation India September, 1964, page 37.)
4. In view of the foregoing discussion we are of the view that the reference referred for opinion is answered in negative against the assessee and in favour of the department. There shall be no order as to costs.
M. B. A./C-1/TReference answered in negative