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

----S. 23(1)(v)---Depreciation---Amendment introduced in S.23(l)(v) of Income Tax Ordinance, 1979 by Finance Act, 1994 is applicable to the assessment year 1994-95.

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

----S. 12(19)---C.B.R. Circular No.20 of 1988, dated 18-10-1988---Accrual of income---Any amount paid or payable to a leasing company in connection with the lease of an asset shall be deemed to be the income of the said leasing company---Principles.

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

----S. 12(19)---Accrual of income---Front end fee, documentation charges and commitment fee earned in connection with the leased out asset have to be considered as part of the lease rental income and not as originating from a different source.

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

----S. 12(19)---Accrual of income---Lease rental income---Income from Bank deposits, profit mark-up on short advances and miscellaneous income are separate income from lease rental income.

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

----S. 134---Appeal to Appellate Tribunal---Rectification---Finding on an issue which was not before C.I.T.(A) and on which the assessee felt aggrieved, the matter should have been taken by the assessee to the C I.T.(A) himself for proper rectification---Such opportunity having not been availed by the assessee, Appellate Tribunal declined to adjudicate on the issue.

Muhammad Aleem for Appellant.

Rahimuddin Ghauri, D.R. for Respondent.

Date of hearing: 2nd April, 1997.

ORDER

MUHAMMAD MAHBOOB ALAM (ACCOUNTANT MEMBER). ---The appeal arises out of order of learned C.I.T.(A) bearing No.720/A-IV, dated 6-5-1996. A number of grounds have been taken by the appellant as arising out of learned C.I.T.(A's) order and are discussed below.

2. The first ground taken by the appellant relates to the applicability of amendment introduced in section 23(1)(v) whereby allowance for depreciation on assets given on lease was made allowable only against the income from lease rentals. This amendment was introduced by Finance Act. 1994 and was considered by the assessing officer as applicable in computing lease rental income for the assessment year 1994-95. According to learned counsel for the appellant, the - amendment was applicable only with prospective effect from the assessment year 1995-96.

3. We have heard the learned counsel for the appellant. He has not cited any authority in support of this contention that the amendment introduced by Finance Act, 1994 in section (1)(v) was not applicable for the assessment year 1994-95 and as such, the same being considered without any merit is dismissed.

4. The next ground taken by the appellant relates to inclusion of front end fee, documentation fee and commitment fee earned in construction with the use of leased out assets as being part of lease rental income. It has been contended by learned counsel for the appellant that these amounts were excluded from the lease rental income and were taken as a separate source of income by the assessing officer. When the matter went to learned C.I.T.(A), he set aside the issue with the following observation:---

"Apparently the arguments of A.R. have force that learned D.C.I.T. has erred in treating front end fee, documentation fee and commitment fee as income from source, other than lease rental because these two types of receipts are also due to the main source is contended, i.e., lease-rental-receipts. Hence, this issue too is set aside for de novo adjudication according to law, after proper opportunity to the appellant, keeping in view A.R's. arguments and the provisions of section 22(c) of the Income Tax Ordinance, 1979 and it is directed, accordingly. While deciding this issue a fresh, the D.C.I.T. is further directed to give detailed reasons for his findings) one way or the other, by writing a self-speaking self? contained order "

5. Before us, the learned counsel for the appellant has drawn our attention to the various lease agreements whereby such payments i.e., documentation charges, front end fee and commitment charges are quoted as part of the lease rentals and are accepted as such by the other parties. The learned counsel for the appellant has also drawn our attention to the provisions of section 12(19) read with Circular No.20 of 1988, dated 18-10-1988. As per section 12(19), it has been provided that any amount paid or payable to a leasing company in connection with the lease of an asset shall be deemed to be the income of the said leasing company. The matter .was further clarified by the C.B.R. vide Circular No.20 of 1988 which is reproduced below:---

"A new subsection (19) has been inserted in section 12 of the Ordinance, which provides that where an assessee, a scheduled bank, a financial institution, or such modaraba or leasing company as approved by the Central Board of Revenue for the purposes of the Third Schedule to the Ordinance, has leased out, on or after 1st July, 1985 any asset to a reason, any amount paid or payable by such person to the said assessee in connection with the lease of such asset shall be deemed to be the income of the assessee. In other words, the entire amount of lease rentals and any other amount (such as additional payment/interest for delayed payment of instalments, penalties, delivery charges, insurance charges etc.) received or receivable, in connection with leasing out of an asset, by the aforesaid category of lessors, shall be deemed as income of such lessors."

6. Relying upon provisions of section 12(19) as elaborated by the C.B.R's. above Circular, it has been contended by the appellant that front end fee, documentation charges and commitment fee were being received in connection with leasing out of the asset and should, therefore, be treated as part of the income from lease rentals. As such, it has been contended that the learned C.I.T.(A) was not justified in setting aside this issue when the relevant provisions of law had been properly explained to him by the appellant. The matter has been considered by us on the basis of the various documents produced before us showing the quotations relating to leasing of assets and the above provisions of law. We are of the considered opinion that these payments have to be considered as part of the lease rental income and not to be treated separately as originating from a different source. The appeal on this ground, therefore, succeeds.

7. In the third ground pressed by the appellant, it has been agitated that the learned C.I.T.(A) instead of giving directions to set off the part of the business income against carried forward losses has instead confirmed the treatment of the assessing officer who according to the appellant, has erroneously taxed a sum of Rs.31,36,773 by considering the said amount as separate from other sources of income. The relevant portion of the learned C.I.T.(A)'s impugned observation is reproduced below:---

"The D.C.I.T. has correctly taxed other income at Rs.31,36,773 separate and distinct income viz-a-viz leasing business income. Interest income on bank deposits for a leasing company cannot be treated as part of leasing-business-income and/or any other business income. It is simply interest income assessable under section 30 of the Income Tax Ordinance, 1979 and not under section 22. The final treatment by the assessing officer is confirmed, even if it is presumed that he has made certain incongruent observations, because the law has to take its own course. One cannot shut his eyes, to the clear provisions of law, due to such observations, if any which were not made as the basis of the finding. The treatment by to the D.C.I.T. is hereby confirmed."

8. From perusal of the above observations of the learned C.I.T.(A), we find that he has simply confirmed the taxability of income from bank deposits, profit mark-up on short advances and miscellaneous income so as to constitute income separate from lease rental income and has, in so doing, proceeded, in our view, according to law. No observation has been made by him regarding setting off of the part of the business income against carried forward losses and as such, there is no basis for us to adjudicate on this issue as pleaded by the learned counsel for the appellant. The ground not arising out of the order of the learned C.I.T.(A) is, therefore, not considered for adjudication.

9. The last ground taken by the appellant relates to setting aside of the computation of capital gain claimed at Rs.25,17,678 which was accepted by the assessing officer and which was also allowed exemption under clause 116 of the second Schedule to the Income Tax Ordinance, 1979. The matter was, however, set aside by the learned C.I.T.(A) as, according to him, the order of the assessing officer was not self-speaking and did not show any allocation of financial charges against this exempt income. The learned counsel for the appellant has pleaded that these observations of the learned C.I.T.(A) are not relevant as this was the part of the ground of appeal raised by the appellant before the learned C.I.T.(A). The matter has been considered by us. Being a finding on an issue which was not before him and on which the assessee felt aggrieved, the matter should have been taken by the appellant to the learned C.I.T.(A) himself for proper rectification. This opportunity has not been availed by the appellant so far. There is no ground before us for adjudication on this issue and as such, the appeal on this ground stands dismissed.

10. The appeal is allowed to the extent and in the manner mentioned above.

M.B.A./519/Trib. ??????????????????????????????????????????????????????????????????????????????? ?Order accordingly.