COMMISSIONER OF INCOME-TAX VS KARIM SILK MILLS LTD.
2001 P T D 793
[Karachi High Court]
Before Saiyed Saeed Ashhad and Zahid Kurban Alavi, JJ
COMMISSIONER OF INCOME‑TAX
versus
Messrs KARIM SILK MILLS LTD.
I.T.C. No.44 of 1993, decided on 11/02/2000.
Income‑tax‑‑‑
‑‑‑‑Deduction‑‑‑Penal interest‑‑‑Such interest being in the nature of fine was not an allowable deduction and the department was right in excluding the same from the deduction claimed by the assessee.
Commissioner of Income‑tax v. Premier Bank Limited 1999 SCMR 1213 fol.
Nasrullah Awan for Applicant
Nemo for Respondent.
Date of hearing: 11th February, 2000.
JUDGMENT
SAIYED SAEED ASHHAD, J.‑‑‑This Income‑tax case has arisen on the basis of an application filed by the applicant/department under section 136(2) of the Income Tax Ordinance prior to its amendment in 1997, raining a question of law and seeking the opinion of this Court thereon. The question of law is as under:‑‑‑
"Whether on the facts and the circumstances of the case learned ITAT was justified in holding that penal interest was allowable under the law as business expenditure."
The brief facts of the case are that in the assessment year 1988‑89 the Income‑tax Officer had disallowed a sum of Rs.6,72,572, which was paid by the respondent/assessee by way of penal interest to M/s Muslim Commercial Bank Limited on re‑finance loan. The said disallowance was set aside and the addition of Rs.6,72,572 was deleted by the Commissioner of Income‑tax (Appeals). In the second appeal filed by the applicant/department before the Income‑tax Appellate Tribunal, the finding of the Commissioner of Income‑tax (Appeals) was upheld and confirmed by it. Feeling aggrieved and dissatisfied with the said finding of the Appellate Tribunal, the applicant/department (sic) reference application before the Appellate Tribunal praying for referring the question of law to this Court. The Appellate Tribunal by its order, dated 19‑7‑1992 in R.A. No. 111/KB of 1991‑92 rejected the same on the ground that it was a finding of fact and did not given rise either to the question of law framed therein or any other question of law. Not feeling satisfied with the impugned order of the Appellate Tribunal, the applicant/department approached this Court directly by way of reference under section 136(2) of the Income Tax Ordinance as it was prior to its amendment.
The question of law whether payment of an amount by way of penal interest is to be considered as business expenditure so as to be allowable deduction in putting the net or taxable income has now been decided by the Supreme Court in the case of Commissioner of Income‑tax v. Premier Bank Limited 1999 SCMR 1213 wherein it has been held that the payments made by an assessee which were in the nature of fine could not be held to have been made or laid out wholly or exclusively for the purpose of its business, therefore, could not be excluded as allowable expenditure for the purpose of determining the profits or gains of the business carried on by such assessee. The Supreme Court finally held that the penal interest was in the nature of tine, was not an allowable deduction and the Income‑tax Officer had rightly excluded the same from the deductions claimed by the assessee.
In view of the pronouncements made by the Supreme Court in the afore-cited case, the question of law on which the applicant/department is seeking the opinion of this Court stands decided and the same is answered in the negative. This Income‑tax case stands disposed of in terms of the above.
M.B.A./C.16/KOrder accordingly.