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

‑‑‑‑Second Sched., Cl. (118‑C)‑‑‑Exemption‑‑‑Past history‑‑‑Refusal of exemption to the income of industrial undertaking earned through lease‑‑‑Exemption refused on the basis of history of the assessee confirmed by First Appellate Authority was upheld by the Tribunal.

(b) Income‑tax‑‑‑

‑‑‑Disallowance of expenses‑‑‑Machinery repairs‑‑‑Industrial under taking‑‑‑Lease agreement‑‑‑‑Machinery repairs expenses of lessor/ assessee not covered under any para./point of the agreement disallowed by First Appellate Authority was not disturbed by the Tribunal since the assessee had failed to substantiate his claim.

(c) Income‑tax‑‑‑

‑‑‑‑Addition‑‑‑Lease income‑‑‑Lease agreement ‑‑‑Lessor/assessee declared lease income according to lease agreement‑‑‑Assessing Officer enhanced the same on the ground that assessee had failed to substantiate same‑‑‑Validity‑‑‑First Appellate Authority deleted the addition keeping in view the past history of the case and directed to accept the declared lease income and the same was upheld by the Tribunal.

1991 PTD 488 rel.

Mirza M. Waheed Bai‑g, A.R. for Appellant (in I.T.A. No.3355/LB of 2000).

Iram Adrian, D.R. for Respondent (in I.T.A. No.3355/LB of 2000).

Iram Adrian, D.R. for Appellant (in I.T.A. No.3738/LB of 2000).

Mirza M. Waheed Baig, A.R. for Respondent (in I.T.A. No.3738/LB of 2000).

Date of hearing: 29th January, 2002.

ORDER

KHALID WAHEED AHMAD (JUDICIAL MEMBER).‑‑‑Cross Appeals have been filed by the assessee as well as the Revenue to impugn the order, dated 16‑6‑2000 passed on ITAT No.825 by the learned CIT & WT (A), Bahawalpur pertaining to the assessment year

2. As per grounds of appeal taken by the assessee, the Assessing Officer as well as the CIT(A) have wrongly denied the right of the exemption under Clause (118‑C) of Part I of Second Schedule, to the income of the Industrial Undertaking earned through lease. The other ground of appeal taken by the assessee is that the CIT(A) was not justified to confirm the addition of Rs.16,000 on account of Machinery Repairs in spite of his admission of the fact that this expenditure was the lessor's responsibility as per agreement.

3. On the other hand, the contention of the Revenue, as per grounds of appeal, the learned CIT(A) was trot justified in directing to accept the declared lease money although the assessee has failed to substantiate it.

4. Relevant facts of the case under consideration are that the assessee is a private limited company deriving income from leasing out its cotton ginning and pressing factory. Return for the year under appeal was filed declaring total loss at Rs.92.070. The Assessing Officer finalized the assessment under section 62 and determined total income al Rs. 73,030. During the year under appeal Cotton Ginning Factory was leased by the assessee to Messrs Ittefaq Corporation for yearly lease money of Rs. 2,00,000. The Assessing Officer did not accept the lease income on the basis of reasons stated in the assessment order and while finalizing the assessment he raised the lease money td Rs. 3,50,000 and also refused exemption to the assessee under clause (lib‑C), The Assessing Officer also made addition of Rs.16,0 in the machinery repair account. Being dissatisfied with the assessment order, the assessee preferred first appeal. Learned CIT(A) confirmed the assessment on the issue of exemption with the findings that in the assessment years 1995‑96, 1996‑97 and 1997‑98, the exemption under clause (118‑C) was also refused at the assessment stage. The assessee went in appeal against the order for the above maintained years and the First Appellate A Authority vide order; dated 7‑1‑1999 in Appeal No.947 for the assessment year 1995‑96 and Order, dated 5‑5‑1999 in Appeals Nos.200 and 201 for the Assessment years 1996‑97 and 1997‑98 has confirmed the action of the Assessing Officer on this issue, Regarding addition out of P & D Account under the Head Machinery Repairs, the findings of learned CIT(A) are that according to the agreement, if any big part is f broken whose value exceeds Rs.15.000 will be replaced by first party i.e. the assessee. However, the expenses in question pertain to repairs which are not covered under any para/point of the agreement. In view of this action of the Assessing Officer, according to the learned CIT(A) the disallowance of expenses at Rs.16,000 was quite justified and he, accordingly, confirmed the same. As far as the issue with regard to the enhancement of lease income is concerned, the learned CIT(A) considering the relevant facts for the years under appeal and past history of the case as well as appellate decision of his learned predecessor in the immediately preceding year, held that the DCI a was not justified to, enhance the lease money to Rs.4,00,000 and deleted the same addition accordingly.

5. The departmental appeal was earlier decided by the Tribunal vide an ex parte order under Rule 20(2) of the I.T.A.T. Rules. However, the Order, dated 30‑6‑2001 in ITA No.3738/LB/2000 pertaining to assessment year 1998‑99 was recalled by the Tribunal through order, dated 7‑11‑2001 in MA No.452/LB/2001.

6. Learned A. R. stated that the issue of exemption under clause (118‑C) of the Schedule is pending before the Lahore High Court in the writ .filed against the order passed in Revision pertaining to the assessment years 1996‑97 and 1997‑98 whereby the same issue was decided against the assessee. Learned AR further informed that the issue was decided against the assessee by the I.T.A.T. in the appeals pertaining to the assessment year 1990‑91. However, it is the contention of the learned A.R. that the assessee is entitled for exemption under the provisions of clause (118‑A) of Part I of Second Schedule being an Industrial Establishment which was formed exclusively for the purpose envisaged therein. It is the contention of the learned A.R. that the condition to engage in manufacturing was attributed ' to industrial undertaking and not to assessee and thus even if the undertaking was leased out the assessee was entitled for exemption. It is also the contention of the learned A.R. that the Assessing Officer was not justified in rejecting the declared lease amount. According to the learned A.R. the amount shown in the lease agreement was verifiable and could not be rejected by the Assessing Officer without any evidence contrary to it. In this context, learned A.R. referred to the provisions of enforcement of Shariah Act, 1991 and submitted that the contract between the two parties was binding and third patty was prohibited from intervening into the mutual agreement between the two parties. In support of his contention, learned A.R has also cited a decision of the Supreme Court of Pakistan reported as 1991 PTD 588. Learned A.R. further contended that the order of the CIT(A) for the assessment years 1996‑97 and 1997‑98 whereby the issue of lease amount was decided in favour of the assessee was confirmed by the I.T.A.T. vide Order dated 21‑7‑2000 in ITA No.4718 and 4719/LB/1999.

7. Learned D.R. on the other hand, defended the assessment order for the same reasons as quoted therein. According to the learned D.R. the lease agreement was not validly executed and the Assessing Officer was justified in rejecting the same.

8. Arguments of both the parties have been heard and the orders of the authorities below perused. In the departmental appeals for the assessment years 1996‑97 and 1997‑98, the Tribunal upheld the directions of learned CIT(A) to accept the declared lease money with the following observations:

"Learned D.R. Obo is present without assessment record was unable to provide any information with regard to filing of second appeal by the Revenue for the assessment year 1995‑96. Learned AR further submitted that the lease money declared by the assessee was also verifiable since complete particulars of the lessee were available. Under the circumstances of the case the finding of the CIT(A) with regard to acceptance of declared lease income do not call for any interference which is hereby maintained."

9. The facts of the case remaining the same for the year under appeal, the impugned order of the CIT(A) on the issue is also upheld and l the appeal of the Revenue on this score fails. The contention of the assessee on the issue of exemption is not accepted in view of the history of the case. The appeal of the assessee on this ground, therefore, fails. With regard to the addition under the Head of "Machinery Repairs", the order of the CIT(A) is also not disturbed since the assessee has failed to I substantiate his claim on this issue.

10. Consequently, both the titled appeals of the assessee as well as of the Revenue being devoid of any merit are dismissed accordingly.

C.M.A./M.A.K./246/Tax (Trib.)

Appeals dismissed.