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

‑‑‑‑S.12 (18A)‑‑‑Income deemed to accrue and arise in Pakistan ‑‑‑Loan‑‑ Loan appeared in the wealth statement as on 30‑6‑1987 was assessed as deemed income in the assessment year 1993‑94‑‑‑Validity‑‑‑Provision of S.12(18A) of the Income Tax Ordinance, 1979 made it clear that only a loan which had not been paid within five years of the income year in which it was obtained or before 30th day of June, 1994, whichever was the later, could be deemed to be the income of the assessee‑‑‑Assessment order showed that loan appeared in wealth statement of the assessee for the first time as on 30‑6‑1987‑‑‑Period of five years from the end of the income year in which loan was taken comes to 30‑6‑1992‑‑‑Date 30‑6‑1994 being later, the assessee was allowed to pay the loan by 30‑6‑1994 which meant that action under S. 12(18A), Income Tax Ordinance, 1979 against assessee could be taken only if the assessee failed to pay the loan by 30‑6‑1994‑‑‑Action against the assessee, if at all was justified by the facts and circumstances, could be taken in assessment year 1994‑95 and not in assessment year 1993‑94‑‑‑Assessing Officer, therefore, could not take action against the assessee in the assessment year 1993‑94 at all.

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

‑‑‑‑S.12(18A)‑‑‑Income deemed to accrue and arise in Pakistan ‑‑‑Loan‑‑ Gift‑‑‑Amount of loan was gifted by the creditor to the debtor/assessee‑‑ Taxability‑‑‑Validity‑‑‑No restriction or any encumbrance existed on the right of a creditor to waive his loan or treat it as a gift to the debtor‑‑ Waiver or remittance of loan by the ‑creditor was an excellent and meritorious act which was encouraged by Islam and by any other social or ethical system‑‑‑No provision existed under any law of Pakistan or under the Islamic Law of gift which forbids or disallows a loaner to waive his right to get back his loan from the loanee or‑W gift away the amount loaned by him to the loanee‑‑‑Observation of the Assessing Officer .that the amount of loan had been got converted, into gift by the assessee in order to defend itself against the application of S.12 (18A) of the Income Tax Ordinance, 1979 was just ridiculous‑‑‑Taxpayer was absolutely allowed to minimize his liability of tax or to avoid tax through legal means ‑‑‑Assessee, in the present case, had adopted a legal mean to avoid tax as his creditor had gifted the amount of loan to the assessee through a valid gift deed in which the Assessing Officer had not been able to find out any defect or discrepancy‑‑‑Assessing Officer in treating the amount of gifted loan as chargeable to tax on the ground of non payment was absolutely illegal which could not be endorsed‑‑‑Appellate Tribunal upheld the order of the Appellate Authority and rejected the appeal of the Department.

Manzoor Hussain Shad, D.R. for Appellant.

Sarfraz, F.C.A. for Respondent.

Date of haring: 10th April, 2002.

ORDER

MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER). ‑‑‑Appeal has been filed by Revenue for the year 1993‑94 to contest appellate ‑order dated 11‑7‑1995 passed for the said year by Commissioner Income Tax Appeal Zone‑1, Lahore under section 132 of the Income Tax Ordinance. It has been contended in the grounds of appeal that the learned Commissioner was not justified to delete the addition made by the DCIT under section 12 (18A) of the Income Tax Ordinance, 1979. .

2. Appellant's DR and assessee‑respondent's AR have been heard. Available records have been perused.

3. According to the facts available on record the Assessing Officer scrutinized wealth reconciliation statement of the assessee and came to notice that accretion in wealth was mainly due to loan of Rs.10,11,237. The said loan was appearing in the wealth statement of the assessee since the year ending 30‑6‑1987 with the remarks "as before". Since the said loan was not paid uptill 30‑6‑1993, the DOT added the amount to assessee's income under section 12 (18A) of the Income Tax Ordinance. The DCIT rejected assessee's contention that the said amount was obtained from a cousin brother living in Saudi Arabia as a loan but the loan was converted into a gift as per gift deed dated 31‑12‑1992. In appeal the learned Commissioner deleted the addition on the ground that provisions of section 12(18A) came into force on 1‑7‑1994 and moreover loan was converted into gift. It is against this action of the learned CIT that the Revenue has come up in appeal before us.

4. The learned DR has submitted that assessee had got the said loan converted into gift in order to avoid application of subsection (18A) of section 12 of the Income Tax Ordinance. The AR of the assessee, on the other hand, has submitted that assessee could not pay the loan before 30‑6‑1992 and so his cousin agreed to gift the said amount to the assessee vide a proper deed of gift executed between the parties on 31‑12‑1992. This gift deed, according to the AR of the assessee, has not been challenged by the ITO but the ITO has wrongly and arbitrarily added the said amount to assessee's income.

5. We have considered the grounds raised by Revenue and have heard the arguments of the authorized representatives of the rival parties. In this case there are two interesting questions before us which need adjudication. First is whether section 12(18A) of the Income Tax Ordinance can be invoked in assessee's case in the assessment year 1993‑94 and second is whether a creditor can legally waive his amount of loan as a gift to the debtor. Our answer to both these questions is as under:

6. The relevant part of section 12(18A) of the Income Tax Ordinance reads as under:

"(18A) (a) where an assessee has claimed, or shown to have received any private loan or advance which is found not to have been paid on or before the thirtieth day of June 1994, or within five years of the expiration of the income ear to which it was obtained, whichever is the later the whole amount of the loan or advance or a. portion thereof remaining unpaid after the expiration of such date or period, as the case may be, shall be deemed to be income of the assessee in the income year immediately next following or any subsequent year in which such finding is made; and"

From the words .of this section which have been underlined above and which are very relevant to the issue under our active consideration, it is crystal clear that only a loan which has not been paid within five years of the income year in which it was obtained or before 30th day of June, 1994, whichever is the later, can be deemed to be the income of the assessee. In assessee's case it transpires from the assessment order of the DCIT that loan appeared in wealth tax statement of the assessee for the first time as on 30‑6‑1987. A period of five years from the end of the income year, in which loan was taken comes to 30‑6‑1992. However, the date 30‑6‑1994 being later, the assessee is allowed to pay the loan by 30‑6‑1994. It means that action under section 12(18A) against assessee can be taken only if the assessee fails to pay the loan by 30‑6‑1994. In other words action against the assessee, if at all it is justified by the facts and circumstances, can be taken in assessment year 1994‑95 and not in assessment year 1993‑94. Therefore, our answer to the first question is in the negative. The DCIT cannot take action against the assessee in the assessment year 1993‑94 at all.

7. So far as the second question is concerned our answer to it is in positive. There is no restriction or any encumbrance on the right of a creditor to waive his loan or treat it as a gift to the debtor. Rather the waiver or remittance of loan by the creditor is an excellent and meritorious act which is encouraged by Islam and by any other social or ethical system. The learned DR has not been able to place before us any statute, any rule or any case law which could hold the action of a creditor in remitting or gifting his amount of loan to his debtor as illegal. According to our knowledge, there is no provision under any law of Pakistan or under the Islamic Law of gift which forbids or disallows a loaner to waive his right to get back his loan from the loanee or to gift away the amount loaned by him to the loanee. The observation of the learned DCIT that the amount of loan has been got converted into gift by the assessee in order to defend itself against the application of section 12(18A) is just ridiculous. It is a trite law that a taxpayer is absolutely allowed to minimize his liability of tax or to avoid tax through legal means. In the instant case assessee has adopted a legal man to avoid tax as his creditor has gifted the amount of loan to the assessee through a valid gift deed in which the learned DCIT has not been able to find out any defect or discrepancy. In view of this situation the action of the DCIT in' treating the amount of gifted loan as chargeable to tax on the ground of non‑payment is absolutely illegal which cannot be endorsed.

8. In view of the foregoing discussion we feel no hesitation to uphold the impugned appellate order of the learned Commissioner and to reject the appeal filed by Revenue.

C.M.A./M.A.K./446/Tax(Trib.) Appeal rejected.