W.T.A. NO.622/1_13 OF 1995 VS W.T.A. NO.622/1_13 OF 1995, 1997 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 175 (1995)

(a) Income-tax---

----Addition---Interest income---Public sector Corporation deriving income from managing agencies, interest, office allowance, commission on guarantees and dividends---Assessee Corporation showed in its accounts certain amount receivable from another public sector Corporation---Assessing Officer treated said amount as income of the assessee and made addition-- Validity---Income Tax Appellate Tribunal deleted the additions as being not justified in circumstances.

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

----First Sched., Part II, para. A(2)(a)---Super-tax---Dividend income-- Assessee, a public sector Corporation deriving income from managing agencies, interest, office allowance, commission on guarantees and dividends ---Assessee calculated tax payable on declared income @ 5 % on the plea that the entire income declared was from income from dividends-- Direction of Commissioner of Income-tax that concessional rate of super-tax be applied to the case of assessee, held, was justified.

Javed Rehman, D.R. and Shahbaz Butt, L.A. for Appellant.

M. Iqbal Chughtai, I.T.P. for Respondent.

Date of hearing: 5th October,' 1995.

ORDER

By this consolidated order we proceed to decide eight cross-appeals in the case of a Public Sector Corporation managing various units/companies. The cross-appeals for the Assessment year 1985-86 arise out of an order, dated 11-6-1988 recorded by the learned CIT (Appeals) Zone-2, Lahore whereas the other six cross-appeals arise out of an order, dated 25-11-1989 recorded by the learned CIT (Appeals), Zone-I, Lahore. The common ground taken by the assessee in, all the years under consideration is the assessment to tax of interest in respect of another Public Sector Corporation PIDC, whereas in the Assessment years 1986-8'7 to 1988-89, the assessee has also agitated the assessment of dividend income under the head income from business or profession. The Department on the other hand has taken a common ground in all the years under consideration to agitate the direction of the first Appellate Authority to tax the divided income at the rate of 5 %

2. The relevant facts in brief are that the assessee is a Public Sector Corporation and derived income from Managing Agencies, interest, office allowance, commission on guarantees and dividends. The bulk of the income is said be derived from the subsidiary companies of this corporation. The assessing officer found that the balance-sheet as on 30-6-1985 of the assessee showed a sum of Rs.6,31,45,130 as receivable from the PIDC as in the past and that no interest on this balance had been shown by the assessee. The assessing officer also observed that the dispute over this balance had already been resolved by the Inter-Corporate Financial Dispute Committee, as disclosed in Note 15 of the accounts and interest at a yearly rate of 8 % was receivable by the assessee from the PIDC in accordance with such decision. Hence, the assessing officer added an amount of Rs.50,51,610 in respect of such undisclosed interest to the income of the assessee for the Assessment year 1985-86. The assessing officer also found that the assessee had calculated the tax payable on the declared income at 5 % on the plea that the entire income declared constituted income from dividend. Following the Assessment orders for the Assessment years 1983-84 and 1984-85, the assessing officer treated the entire income as income from business or profession and calculated income-tax at 30% and super-tax at 25% of the total income. The learned CIT (Appeals) upheld the addition of Rs.50,51,610 in respect of interest but he directed the 'assessing officer to apply a rate of 5 % in respect of the tax payable on dividend. This pattern of assessment continued for the remaining three years under consideration. The learned CIT (Appeals) also followed the same pattern while passing his order for the Assessment years 1986-87 to 1988-89.

3. The learned counsel of the assessee has strongly argued that the issues of taxability of interest income from PIDC and the rate of tax chargeable on dividends income have already been decided by the Tribunal in favour of the assessee. The learned A.R. of the assessee has referred to the following decision of the Tribunal in the case of his assessee.

4. While passing an order, dated 12-5-1987 recorded in I.T.A. No.3290/LB/1984-85 pertaining to the Assessment year 1983-84, the Tribunal has directed that the dividend income should be subjected to super tax at 5 % only and that no income-tax should be charged in this case. Vide an order, dated 22-9-1990 recorded in ITA No. 2609/LB/1986-87 pertaining to the Assessment year 1984-85, it was directed that the dividend income should be assessed under section 30 of the Income Tax Ordinance (hereinafter called the Ordinance) and subjected to concessional rate of super tax only as no income-tax is leviable on this income. The issue of shareability of interest on balance outstanding against PIDC was remanded back to the assessing officer for de novo consideration with the following directions:---

"As already elaborated above, the assessee has not charged any interest on certain balance due from PIDC as those balances themselves are in dispute. These balances have been outstanding for a long time and it is not clear whether the assessee ever charged interest on this balance or this matter was ever raised by the Department. The assessee has also taken the plea that principal amount itself is in dispute and a final settlement has to take place. The fact that PIDC have credited certain amount of interest to the account of the assessee has not been denied but the motive of the same is not clear. Mere crediting of this amount to the account of the assessee does not prove that PIDC has finally acknowledged this amount as a debit. We feel that this matter needs further probe to establish whether or not any income on this account accrued or arose to the assessee-company, which could be charged to tax. The assessee-company acquired more than one fertilizer units from the other public sector bodies and its claim for write off of a certain amount due from one of the subsidiary companies was not allowed by the department in the preceding year but the Tribunal set aside that issue for re-consideration. This indicates that the assessee company has a lot of mess to clear and since some considerable time has elapsed since the assessment was made for the year under appeal, a fresh look into the subsequent events may establish whether or not the assessee-company had earned this income during the year under appeal. The assessment on this issue is, therefore, set aside and remitted back to the assessing officer for de novo consideration. "

Vide another order, dated 19-4-1994 recorded in ITAs Nos. 31 and 32/LB/ 1992-93 pertaining to the Assessment years 1984-85 and 1989-90, the addition of interest on account of PIDC was deleted in the Assessment year 1984-85 as well as Assessment year 1989-90. In the Assessment year 1989-90, again it was directed that the dividend income of this Corporation should be charged to tax in accordance with paragraph A(2)(a) of Part Il of the First Schedule to the Ordinance.

5. Learned Legal Advisor on the other hand strongly supported the orders of the assessing officer. The learned Legal Adviser referred to the orders of the assessing officer for the Assessment year 1985-86 and order o: the Tribunal, dated 19-4-1994 to support the action of the assessing office while treating the dividend income as business income and charging the tax on interest on balance due from PIDC. As per the assessment order for the year 1985-86, the perusal of Articles and Memorandum of Association of the Company empower the assessee to acquire, establish or manage fertilizer companies and thus he concluded the earning of dividend and interest income was incidental to the business of the assessee and assessable under section 22 of the Ordinance. The assessing officer also observed that the assessee itself has declared such receipts as business income. The assessing officer further observed that the provisions of section 30 were not mandaton in nature. The learned Legal Adviser also referred to para. 3 of the Tribunal's order, dated 19-4-1994 to support his arguments. However, we de not find this paragraph of the Tribunal to be supporting the contention of the learned Legal Adviser. The learned Legal Adviser further elaborated the contentions of the Department to charge to dividend income as business income by reference the definition and meaning of the term 'business' giver under section 2(11) of the Ordinance and various dictionaries such as Black's Law Dictionary, Webster's Comprehensive Dictionary and Chamber's 20th Century Dictionary The learned Legal Adviser further referred to the provisions of section 15 to demonstrate this section not only dealt with computation of income but also with the chargeability of tax. The learned Legal Adviser further referred to the provisions of section 22(1)(a) and section 30 to argue that the income of any business, including interest income was to be computed under section 22 of the Ordinance and under section 30 of the Ordinance only such interest income could be charged if it was not included under any other hand. Thus the contention of the learned Legal Adviser was that the provisions of section 30 are only residuary provisions. The learned Legal Adviser further argued that income of the assessee could not be bifurcated into business income and other income as evident from the computation given on page 2 of the assessment order. The learned Legal Adviser further referred to the provisions of paragraph A(2)(a) of the First Schedule to argue that it was only a public company which could claim benefit of concessional rate of tax in respect of dividends received from Pakistani companies. It was claimed by the learned Legal Adviser that the assessee had to establish the claim by proving that this was a public company and received dividend from Pakistani companies. The Legal Adviser further argued that the assessee had taken double benefit by setting off the expenses against the dividend income and availing concessional rate of tax which could not be allowed. The learned Legal Adviser, however, could not defend the action of the assessing officer in charging the interest of PIDC balance and it was conceded that provisions of section 12(7) had already been repealed.

6. The learned A.R. of the assessee after arguments of the learned Legal Adviser explained that the assessee was a public company as all the shares were held by the Federal Government and it was duly incorporated under the Companies Act, 1913. It was further submitted by the learned A.R. of the assessee that arguments and objections taken by the learned Legal Adviser had already been considered and decided by the Tribunal in its order pertaining to the assessment year 1983-84. On the objection of the learned Legal Adviser with regard to the double benefit taken by the assessee, it was explained by the learned A.R. of the assessee that the assessee had set off of the business loss against dividend income which was permissible and allowed by the law.

7. We have considered the submissions of both the parties. It does not take us long to dispose of the matter of the deemed interest of balance with PIDC. The learned Legal Adviser has conceded that the provision of section 12(7) of the Ordinance had already been repealed. The assessee company has not disclosed any real income nor is there any allegation that there was any income earned by the assessee on this account. In the Assessment years 1984-85 and' 1989-90 the Tribunal had already deleted the additions on the same account vide the order, dated 19-4-1994 recorded in LT-As. Nos.31 and 32/LB/1992-93 (supra). Hence the assessee's appeals on this issue are accepted and the addition on account of this interest is deleted in all the years under consideration.

8. The next issue is whether the dividend income received by the assesee was business income or whether it should be subjected. to a concessional rate of super-tax instead of full rate of income-tax arid super-tax applicable to the business income. This issue has already been settled by the same order, dated 19-4-1994 (supra) in favour of the assessee. The Lahore High Court has also decided a departmental reference application under section 136(2) of the Ordinance for the Assessment year 1983-84 on this e issue vide an order, dated 25-9-1995. In that Assessment year 1983-84, the Tribunal had directed that the concessional rate of super-tax prescribed by paragraph-A(2)(a) of Part II was to be applied to the dividend income of the assessee. The honourable Judges of the High Court dismissed a reference application vide under section 136(2) of the Ordinance and it would be pertinent to refer to para.8 of such judgment recorded in P.T.R. No.39 of 1990 in the case of CIT, Lahore v. National Fertilizer Corporation, Lahore 1996 PTD 276 which reads as follows:---

Admittedly, the assessee is a Pakistani Company and the dividend income, too, is from a Pakistani Company and there is a dividend income; the required conditions to apply a concessional rate or super-tax under sub-para. (2) of paragraph of Part I f he Schedule had been fulfilled.

The learned AR of the assessee has also filed certificates from the assessee that this was a public corporation and dividend income received from the Pakistani companies only. Hence, we have no hesitation in upholding the directions of the learned CIT(A) for the application of a concessional rate of super-tax in all the years under consideration. In the presence of this order, we do not feel any necessity to discuss the arguments of the learned A.R. or ground taken by the assessee that dividend income was a business income and that ground is dismissed as such. The objection of the learned Legal Adviser. that the assessee has taken dual advantage by setting off the business loss against the dividend income also the application of lower tax rate has been successfully met by the learned A.R. of the assessee. The argument of whom is found to be forceful on this issue, No other ground was pressed.

9. As a result the assessee's appeals succeed to the extent that the addition on account of interest on PIDC in all the years under consideration whereas the departmental appeals are dismissed being devoid any force.

M.B.A./227/TOrder accordingly.