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

‑‑‑‑S. 13(1)(aa),‑‑Addition‑‑‑Unexplained cash credit‑‑‑Balance shown by the assessee in balance‑sheet as payable was more than what was shown by the creditor in his balance‑sheet‑‑‑Reconciliation was filed by the assessee‑‑‑Addition without pointing out any discrepancy in the reconciliation statement by treating the same as unexplained cash credit‑ Validity‑‑‑Alleged discrepancy had arisen due to time difference in recording transaction in two companies‑‑‑Time difference in recording of transactions was quite common in the business undertakings and for that purpose reconciliations were prepared to ensure .that there were no unexplained differences‑‑‑Assessing Officer had not pointed out any flaw in the reconciliation provided by the assessee-‑‑Reconciliations were also common in the balances shown by the Banks and appearing in the Bank books of the company‑‑‑Such difference could not be made the basis of treating the same as "deemed income" under S.13 of the Income Tax Ordinance, 1979‑‑‑Order of the First Appellate Authority was confirmed by the Appellate Tribunal on the issue.

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

‑‑‑‑S. 13(1)(aa)‑‑‑Addition‑‑‑Refundable sales tax‑‑‑Addition was made on the ground that assessee had been offering net sales for taxation i.e. after deduction of sales tax from gross sales, thus the same was liable to be added to income‑‑‑Validity‑‑‑Action of the Assessing Officer was misplaced being based on incorrect assumptions and against the facts‑‑ Department failed to point out the provision of law under which said addition was made‑‑‑Such amount was appearing as an asset in the balance‑sheet of the assessee and by no stretch of mind could be treated as income‑‑‑Assessing Officer, at the best, could have asked the assessee to explain as the source from which the credit for said amount had been taken which could only be done if the Assessing Officer had confronted the assessee but no notice was issued to the assessee on this issue at all‑‑ Addition deleted by the First Appellate Authority was maintained by the Appellate Tribunal.

(c) Income tax‑‑‑

‑‑‑‑Expenditure‑‑‑Payment to employee in respect of voluntary separation scheme/golden handshake scheme‑‑‑Addition‑‑‑Addition made was deleted in the one year and set aside in the second year by the First Appellate Authority on the ground that no tax was required‑ to be withheld from payment made in respect of golden handshake scheme or voluntary separation scheme‑‑‑Appellate Tribunal set aside the issue in both the years and remanded the matter to the Assessing Officer with. the same direction as given by the First Appellate Authority.

(d) Income‑tax‑‑‑

‑‑‑‑Expenditure‑‑‑Liability in respect of Workers Participation Fund‑‑ Disallowance of ‑‑‑Validity‑‑‑Assessee was an industrial undertaking and under the relevant law was required to pay 5% of its profits to its workers and it was not the claim of the Department that such fund was not payable at all‑‑‑First Appellate Authority had rightly deleted the addition‑‑‑Appeal was dismissed by the Appellate Tribunal on such issue.

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

‑‑‑‑S. 52 & 86‑‑‑Liability of persons failing to deduct or pay tax ‑‑‑Short fall in deduction of tax ‑‑‑Assessee in default‑‑‑‑Validity‑‑‑Action under S.52 of the Income Tax Ordinance, 1979 could be taken if the assessee had failed to deduct tax or having deducted tax failed to deposit the same in the treasury‑‑‑No clear‑cut provision existed authorizing an Assessing Officer to proceed in the case of a shortfall in the deduction of tax‑‑‑First Appellate Authority was justified to hold that Assessing Officer had not proceeded against property‑‑‑Tax deleted by the First Appellate Authority was upheld by the Appellate Tribunal.

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

‑‑‑Ss. 52 & 86‑‑‑Liability of persons failing to deduct or pay tax‑‑ Assessee in default‑-‑Collection of tax is fundamentally the function of the Revenue Officer and not that of the employer‑‑‑Law had thrusted this responsibility on the employer for its own reasons and such responsibility was very heavy‑‑‑Employer was discharging the functions which normally should be carried out by the Revenue Officer; not only that, the employer was also required to file various statements on monthly as well as annual basis for which he was not compensated at all and on the contrary, the employer was always under a threat for penalties for non‑deduction or non‑deposit, of tax or non‑filing of statements‑‑‑Revenue Officer must proceed very judiciously before penalizing the assessee or the employer in circumstances.

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

‑‑‑‑S. 156 & Third Sched., R.5(1)(c) & 8(4)‑‑‑Rectification of mistake‑‑ Initial depreciation on plant and machinery‑‑‑Objection by Audit and Inspection Authority‑‑‑Addition by rectification‑‑‑Validity‑‑‑Assessing Officer had proceeded to rectify the orders on the basis of observations of the audit party and without application of mind which was the change of opinion and not mistake apparent on record‑‑‑Show‑cause notice had also not been issued in some years‑‑‑One year was also hit by limitation‑‑‑No notice under S.156(2) of the Income Tax Ordinance, 1979 was issued before rectification, of original assessment‑‑‑Department did not dispute with such observations‑‑‑Appellate Tribunal did not interfere in the finding of the First Appellate Authority.

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

‑‑‑‑Third Sched., Rr. 2, 5(1)(c) & 8 (4)‑‑‑Initial depreciation on plant and machinery‑‑‑Disallowance of initial depreciation claimed on sanitary and water workshop equipment, office equipment, residential equipment etc. being not included in the definition of "plant and machinery" as defined in R.8(4) of the Third Sched. of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Rule 8(4) only defined the `plant' and not `plant and machinery ---Initial depreciation under R.5(1)(c) of the Third Sched. of the Income Tax Ordinance, 1979 ,would be admissible on all the plant and machinery which were not otherwise specified in R. 2‑‑‑Addition deleted on such issue by First Appellate Authority was maintained by the Appellate Tribunal.

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

‑‑‑‑Ss. 88, 156 & 50‑‑‑Charge of additional tax for failure to pay tax with. the return‑‑‑Short payment of tax‑‑‑Levy of additional tax‑‑‑Fist Appellate Authority set aside the levy with the direction to re‑compute additional tax after giving the appeal effect‑‑‑Department had taken stereotype grounds in respect of order passed under S.156 of the Income Tax Ordinance, 1979 and there was no specific ground to challenge the setting aside of levy of additional tax‑‑‑Appeal was misdirected and no prejudice was caused to the revenue by setting aside the same‑‑ Appeal of the Department was dismissed by the Appellate Tribunal.

(j) Income Tax Ordnance (XXXI of 1979)‑‑‑

‑‑‑S. 62‑‑‑Companies Ordinance (XLVII of 1984), S. 156‑‑‑Assessment on production of accounts, evidence etc.‑‑‑Private limited company‑‑ Public limited company‑‑‑Ownership of share‑‑Determination of status ‑‑Rate of tax ‑‑‑Assessee was taxed @ 46% instead of @ 36% by assigning the status of a private company which was upheld by the First Appellate Authority‑‑‑Appellate Tribunal set aside the orders of the departmental officials on the issue of assignment of status of private or public limited company and remanded the matter back to the Assessing Officer to verify the actual ownership of the shares of the company‑If more than 50% shares were held by the Government, then; obviously the assessee had to be treated as a public company‑‑‑Provisions of the relevant Income Tax Law did not distinguish between the ordinary and preference shares or any voting right but simply laid down that a company will be treated as a public company if at least 50% of the shares were held by the Government‑‑‑Assessing Officer was directed by the Appellate Tribunal to verify the ownership of said shares from the concerned quarters in the Government of Pakistan and (or) by examination of the shares certificates or authenticated copies thereof in each year to establish the status of the company.

1990 PTD 825 ref.

Khalid Mehmood A.C.A. for Appellant.

Noshad Ali Khan D.R. for Respondent.

Date of hearing: 8th January, 2003.

ORDER

By this consolidated order we proceed to decide these eight departmental appeals against a public sector company deriving income from manufacture and sale of electronic equipments, components and parts mainly supplied to Pakistan, Telecommunication Company Limited (PTCL) alongwith the three appeals of the assessee. Both the parties have been heard and the relevant orders perused. The appeals are decided in the following manner.

DEPARTMENTAL APPEALS

DELETION OE ADDITION MADE UNDER SECTION 13(1) OF THE INCOME TAX ORDINANCE. 1979.

2. This common issue is involved in the assessment years 1997‑98 and 1998‑99. The Assessing Officer found that the balance shown in the balance‑sheet as payable to PTCL was more than what was shown by PTCL as on the balance‑sheet date. In the assessment year 1997‑98, such difference was found to the tune of Rs.30,000,697. The assessee was asked by the Assessing Officer to explain this difference and it was explained by the assessee that the difference arose because of the difference in timing of booking the certain transactions as adopted by the two companies: The assessee also provided a reconciliation. However, the Assessing Officer did not accept this explanation and made the addition of this amount in the assessment year 1997‑98. The learned CIT(A)‑I, Islamabad, vide the impugned order, dated 25‑1‑2001 deleted this addition with the following observations:

"In view of the facts and circumstances of the case, I am of the opinion that the Assessing `Officer was not justified to make addition under section 13(1)(a), it is held that he was misled in concluding that the amount in question represented a discrepancy in the company's account and thus treated it as; cash credit. On the basis of evidence/details and clarifications offered by the A.R. the addition is not maintainable and is deleted. Reliance is also placed on the case‑laws quoted above."

The Department has filed appeal bearing I. T. A. No. 838/1B of 2000‑2001 against these directions.

3. In the assessment year 1998‑99, an addition of Rs.63,416,714 was made in a similar fashion which was deleted by the same Appellate Authority vide an order, dated 28‑7‑2001 and in the similar fashion, the Department has filed the appeal bearing ITA No.296/IB/2001‑2002 against such order. It would be useful to reproduce the objections of the Assessing Officer as communicated to the assessee as reproduced in the assessment order in the following manner:‑‑

"Perusal of your audited accounts filed alongwith the return of total income for the assessment year 1997‑98 shows the payables/receivable from PTCL as under:‑‑

(i)As per note‑5 to the audited accounts, the break‑up of payables to PTCL has been shown as under:

(a)Due to PTCLRs.112039372

(b)Advances due to PTCLRs.623251497.

Total payables:Rs.735290869

Less:As per note‑II to the accounts

Receivable shown from PTCL.Rs.192236172

Balance net of payable to PTCL.Rs.543054697

For cross verification letter for confirmation of these figures was dispatched to R.T.C.L. It was confirmed by P.T.C.L. vide letter No. Dir. A/C's (AS & 1) 35/99 dated 26‑4‑2000 that net of receivables from CTL comes to Rs.513.054 (M). This leads to discrepancy of Rs.30000697 in your claim of liability from PTCL as on 30‑6‑1997. Considering all the facto and figures together leads to the fact that corresponding assets to the tune of Rs.30000697 are unexplained and call for addition under section 13(1)(aa) of the Income Tax Ordinance, .1979."

In response to this notice, the assessee referred to its earlier correspondence, dated 21‑4‑2000 led in response to the notice under section 62 of the Income Tax Ordinance, 197, for the assessment year 1999‑2000 and disputed the allegation that there was any discrepancy. The assessee also filed a reconciliation between the balance shown by the assessee and that shown by PTCL. However, the explanation was rejected by the Assessing Officer in the following manner as communicated to the assessee and recorded in the assessment order:

"In response thereto you have submitted that the sum of Rs.30(M) was accounted for PTCL. In support thereof you have submitted a statement of liability issued by PTCL as on 31‑12‑1997. Perusal of this statement shows that receivable in your name as maintained by PTCFL were reduced by Rs.30,000,000 on the basis of memo. issued on 13‑10‑1997 which has nothing to do with the assessment year 1997‑98 as is evident from the statement of liabilities issued by PTCL. Hence the explanation filed by you as regards the discrepancy of Rs.30,000,697 appears to an after thought and without any basis. However, the notice issued earlier is to be modified the extent that the above said sum should be treated as unexplained cash credit liable to tax under section 13(1)(a) for the assessment year 1997‑98 instead of section 13(1)(aa) of the Ordinance.."

The assessee‑company again emphasized that the alleged discrepancy was arising due to timing difference in recording the transactions in the two companies. However, such explanation was not accepted. We are afraid that this is not the purpose for which section 13 was introduced. This kind of timing differences in recording of transactions is quite common in the business undertaking and for that purpose, reconciliations are prepared to ensure that there are no unexplained differences. The Assessing Officer hag not pointed out any flaw in the reconciliation provided by the assessee. Reconciliations are also common in the balances shown by the banks and appearing in the bank books of the company. Such differences could not be made the basis of treating the same as deemed income under section 13 of the Income Tax Ordinance 1979. The learned DR was unable to controvert the findings given by the learned CIT(A). For these reasons, we confirm the orders of CIT(A) on this issue in both the assessment years 1997‑98 and 1998‑99. The departmental appeals on this issue fail.

Sales Tax Refundable

4. This issue arises out of the impugned order, dated 25‑1‑2001. In the balance‑sheet as on 30‑6‑1997, the assessee had shown certain balances on account of advance payments of income‑tax and. sales tax refundable, The Assessing Officer made the addition in respect of refundable sales tax with the following observations and after citing a few cases:‑‑

"The assessee‑company has shown sales tax refundable at Rs.23,053,194 in the accounts, as receivable. It is noteworthy that the assessee‑company has been offering net sales for taxation i.e. after deduction sales tax from gross sales. Therefore, the amount of Rs.23,053,194 is liable to be added to the income."

The learned CIT(A) deleted this addition after holding that the action of the Assessing Officer was misplaced based on incorrect assumptions and against the facts. The learned DR was invited to point out the provision of law under which this addition could be made but he failed to point out the provision of law. It is to be considered that this amount is appearing as an asset in the balance‑sheet of the company and by no stretch of mind could be treated an income. At best, the Assessing Officer could have asked the assessee to explain as to where the credit for this amount has been taken. This could only be done if the Assessing Officer has confronted the assessee but unfortunately no notice was issued to the assessee on this issue at all. Hence we are not inclined to interfere on this issue.

Disallowance of Expenditure

5. This issue is involved in both the assessment years 1997‑98 and 1998‑99. The assessee had made payments to its employees in respect of voluntary separation scheme or what is commonly called golden handshake scheme in both the years. The learned CIT(A) has deleted this addition in the assessment year 1997‑98 after referring a ruling of the Honourable Lahore High Court, Rawalpindi Bench in Writ Petitions Nos.331,1963,1966 etc. According to this learned CIT(A), it had been held on those writ petitions that no tax was required to be withheld from payments made in respect of golden handshake scheme or voluntary separation scheme,. However, in the assessment year 1998‑99, while recording the order 28‑1‑2001, the same Appellate Authority set aside the same issue. The learned DR has not been able to establish the prejudice caused to the Department by setting aside of this disallowance in the assessment year 1998‑99. However, considering the discrepancy in the order of CIT(A) in these two years, we are inclined to set aside the issue in both the years and remand the matter back to the Assessing Officer with the same direction as given by the learned CIT(A)‑I for the assessment year 1998‑99.

Workers Profits Participation Fund

6. While making the addition on account of voluntary separation scheme, in the assessment year 1998‑98, the Assessing Officer also disallowed a liability of Rs.312,655 in respect of workers participation fund. Both these liabilities were held to be contingent liabilities. However, no reason was given for these finding of the Assessing Officer. It is not the claim of the Department that the assessee had shown these liabilities as contingent liabilities in the balance‑sheet. It appear that the Assessing Officer has failed to appreciate the meaning of contingent liability. A contingent liability is one which may or may not become payable in the future subject to happening of certain events. For instance, a company may face a suit for damages, say, for a sum of one million. This will be treated as a contingent liability until the litigation is finally decided. However, it will become liability if the case is decided against the company. Till such time, this will be shown as a contingent liability, but not as a part of the liabilities in the balance‑sheet. This will be shown only by way of a note and no liability is required to be booked in respect of a contingent liability. The assessee is an industrial undertaking and under the relevant law is required to pay 5 % of its profits to its workers and it is not the claim of the Department such fund is not .payable at all. Hence we find that the learned CIT(A) has rightly deleted this addition. The departmental appeal on this issue is dismissed.

Assessment under section 52/86 of Income Tax Ordinance, 1979

7. The Assessing Officer held the assessee to be "an assessee in default of non‑deduction of withholding tax under section 50(1) amounting to Rs.577,569". The First Appellate Authority set aside the issue vide order, dated 8‑1‑1999 and again after confronting the assessee the same treatment was meted out. The assessee had taken the plea that it had deducted the tax from salaries at an average rate on estimated income of the employees. Additional tax under section 86 was also levied. Before the First Appellate Authority, the assessee objected to the treatment on the plea of short notice. It was also explained that shortfall in the deduction was no account of Zakat and Children education expenses under the Board's circular. The learned CIT(A) held that the Assessing Officer had not proceeded properly in the second round as directed by the First Appellate Authority. It was also the plea of the assessee before the CIT(A) that the employees "has discharged the tax liability and thus the company could not be treated as an assessee in default. This plea was also accepted.

8. The learned DR was invited to point out any infirmity in the order of CIT(A). Also the learned DR was invited to read the provisions of section 52 to‑point out if the law permitted the Assessing Officer to proceed in a case where there was a short deduction of tax. A perusal of the law shows that the action under section 52 can be taken if the assessee has failed to deduct tax or having deducted tax failed to deposit the same in the treasury. There is no clear‑cut provision authorising an Assessing Officer to proceed in the case of short fall in the deduction of tax. We cannot help but comment that the collection of tax is fundamentally the function of the revenue officer and not that of the employer. The law has thrust this responsibility on the employer for its own reasons and such responsibility is of course very heavy. The employer is discharging the functions which normally should be carried out by the revenue officer. Not only that, the employer is also required to file various statements on monthly as well as annual basis for which he is not compensated at all. On the contrary, the employer is always under a threat for penalties for non deduction or non‑deposit, of tax or non filing of statements. In these circumstances, the revenue officers proceed very judiciously before penalizing the assessee or the employer. The reasons given by the learned CIT(A) in this case appear to be justified. Hence no interference is made. The departmental appeal bearing ITA No.893/IB/2000‑2001 on this issue is dismissed.

Admissibility, of initial depreciation

9. This common issue arises in the assessment years 1993‑94, 1994‑95, 1995‑96 and 1996‑97 out of the order, dated 8‑6‑2001 of the learned CIT(A)‑I, Islamabad. The audit and inspection authority of the Income Tax Department pointed out to the Assessing Officer that in these four years the assessee had been allowed initial depreciation allowance in respect of certain assets which did not fall within the definition of plant and machinery. Such assets were said to be sanitary and water Workshop equipment, office equipment, residential equipment etc. The Assessing Officer issued a show‑cause notice showing his intention to rectify the original assessments by disallowing initial depreciation on such assets. The assessee took, the objection that this was not a mistake apparent from record but a change of opinion. The assessee also emphasized that the initial depreciation was admissible on all the machinery and reference was made to some extracts of Kanga and Palkiwala and also the provisions of Rule 5(1)(c) of third Schedule to the Income Tax. Ordinance, 1979. The Assessing Officer however rejected such explanation and referred to the provision of rule 8(4) of the Third Schedule whereby the plant has been defined as a ship, aircraft or vehicle registered in Pakistan including books, scientific apparatus and surgical equipment used for the purpose of business or profession. According to Assessing Officer, the office equipment and allied items were not covered under the ambit of plant and machinery. He, therefore, proceeded to make the rectification by disallowing the initial depreciation in all the four years under consideration. Hence the revised assessment was made. The learned CIT(A) vide the impugned order, dated 8‑6‑2001 held that the Assessing Officer had erred in rectifying the assessment for the charge years under consideration after holding that this was ,the change of opinion and that in the assessment years 1995‑96 and 1996‑97 no show‑cause notice had been issued. In the assessment year 1993‑94, it was further held that the order was hit by limitation. The learned CIT(A) also observed that the Assessing Officer had proceeded to rectify the orders on the basis of observations of the audit‑party and without application of mind.

10. The learned DR was invited to point out the‑infirmity in the order of CIT(A). In the assessment year 1993‑94, the learned CIT(A) had observed that the rectification had been carried out after a lapse of more than four years after the original assessment. In the impugned order of the Assessing Officer; the date of order under section 132 has been given as 30‑1‑1999 but there is no mention of the date of original assessment order when presumably the initial depreciation was allowed on the assets in question. The learned DR is unable to displace the finding of the learned CIT(A). Hence we are not inclined to interfere in the assessment year 1993‑94.

11. In the assessment years 1995‑96 and 1996‑97, the learned CIT(A) has observed that there was no notice issued as required by section 156(2) of the Income Tax Ordinance, 1979, before the rectification of original assessment. The learned DR has not disputed these observations. Hence again we are not inclined to interfere in the assessment years 1995‑96 and 1996‑97.

12. This leads us to the assessment year 1994‑95 when this issue is to be decided. The learned DR was invited to displace the order of the learned CIT(A). The learned DR has referred to the provisions of rule 5 of Third schedule which lays down the admissibility of initial depreciation by special reference to clause (c) of sub‑rule (1). It would be useful to reproduce the relevant part of rule which reads as follows:‑‑

"(5) Initial deprecations.‑(1) Where any building has been newly erected, or any machinery or plant has been installed, in Pakistan At any time between the first day of July, 1976, and the thirtieth day of June, 2000 (both dates inclusive), further depreciation allowance in respect of the year of erection installation or the year in which such building, machinery or plant is used by the assessee for the first time for the purposes of his business or profession or the year in which commercial production is commenced, whichever is the later, shall be allowed at the following rates, namely:‑‑

(a)

(b)

(c)In the case of machinery orTwenty‑five per cent

plant (other than X‑Ray and of the written down

electrotherapeutic apparatus and value. "

accessories, or ships or motor

vehicles not playing for hire).

Thereafter the learned DR referred to the definition of plant as given in sub‑rule 4 of rule 8 of the same Third Schedule which reads as follows:

"(4) "plant" means any ship, aircraft or vehicle registered in Pakistan and includes books (other than books in respect of which an allowance has been made under section 42 of this Ordinance or section 15F, of the repealed Act), scientific apparatus and surgical equipment used for the purposes of business or profession."

Thus, according to the learned DR the initial depreciation could only be allowed on the assets which fell within the definition of plant given in sub‑rule 4 reproduced above. The learned DR was than invited to point out a provision under which category the assets in dispute were placed for admissibility of depreciation. The learned DR has conceded that the normal depreciation was allowable to all such machinery and plant items under class IV as laid down in rule 2 of the Third Schedule. Reading the provisions of rule, 2, rule 5(l) and rule 8(4) together, we find that there is no separate heading of class of assets for the assets such as office equipment and household equipment. Admittedly, normal depreciation is allowed under class IV as given in rule 2 which is titled as plant and machinery (not otherwise specified). Rule 5(1)(c) allows initial depreciation in the case of machinery or plant other than the X‑Ray electrotherapic apparatus, ships, motor vehicle etc. which are separately classified in rule 2 for normal depreciation purpose. On the other hand, rule 8(4),only defines the `plant' and not `plant and machinery'. Thus, it could be said that the initial depreciation under, rule 5(l)(c) would be admissible on all the plant and machinery which are not otherwise Specified in rule 2. Hence, we feel that no interference is required in the order of CIT(A) on this issue in any of the years where this dispute has arisen. Thus, the Department appeals bearing I. T. A. Nos. 117 to 120/IB of 2001‑2002 on this issue are dismissed.

Additional Tax under section 88.

13. The Assessing Officer has levied additional tax in the assessment year 1996‑97 under section 88 of the Income Tax Ordinance, 1979 as the assessee was found to have made a short payment of Tax. The learned CIT(A) has set aside the levy with the direction to the Assessing Officer to re compute the additional tax if any after giving appeal effect to the main appeal after the loss suffered at source which has not been allowed as well as on the basis of claim of refund in excess of 36 million.

14. A perusal of the appeal documents shows that the Assessing Officer, the appellant, has taken stereotype grounds in respect of the other orders passed under section 156 of the Income Tax Ordinance. 1979 and there is no specific ground to challenge the setting aside of levy of additional tax. Hence this appeal is found to be misdirected. In any case, we do not find any prejudice caused to the Revenue by setting aside. Hence no interference is required. The appeal is dismissed.

Assessee's Appeals

15. The assessee in its appeals, has taken the following common ground:

"The learned Commissioner of Income Tax and Wealth Tax has erred upholding the Assessing Officer's action subjecting to tax your Appellant's income @ 46% instead of @ 36% applicable to a "public company" in spite of the fact that the Assessing Officer neither discussed or assigned any reason in support of his said action."

A perusal of the assessment order shows that the Assessing Officer has not discussed this issue in the assessment order. The learned CIT(A) has upheld the treatment of the assessee‑company as a private limited company in all the three years under consideration on the ground that the shares of that assessee were held by the PTCL and Siemens AG although the same has not been discussed in detail. The learned CIT(A) has referred to a decision of the Honourable Karachi High Court reported as 1999 PTD 825 without discussing the facts of the present case and the cited case. The learned CIT(A) has also referred to a decision of the First Appellate Authority, dated 8‑1‑1999 pertaining to the assessment years 1992‑93 1993‑94 and 1994‑95 on the issue of rectification of the original assessments on the same issue. As per the impugned order of the learned CIT(A), the rectification orders passed under section 156 of the 1979 Ordinance had been annulled by the First Appellate Authority holding such order to be outside the ambit of the provisions of section 156 of the 1979 Ordinance. However, the learned CIT(A) held that the Assessing Officer was justified in assigning the status of a private company while passing the order under section 62 of the 1979, Ordinance.

16. The learned AR has strongly argued that the departmental officials had not correctly appreciated the facts of the case and it was submitted that the majority shares of the company (more than 50%) were held by the Govt. of Pakistan and not by Pakistan Telecommunication Corporation Limited (PTCL). The learned AR has filed a copy of the Form‑A filed by the company under section 156 of the Companies Ordinance, 1984 with the Registrar of the Companies and a copy of the register of members and share ledger. The copy of the Form‑A indicates that 8010 ordinary shares of Rs.1000 each of this company were in the name of the President of Islamic Republic of Pakistan through PTCL Islamabad and the address of the share holder is given as "represented by Mr. Nasim S. Mirza, the Chairman, PTCL (ex‑T&T, Islamabad). The same Form‑A also shows that 7251 preference shares stood in the name of Siemens AG, 8 Mansion 70, Ouch Posh 70070, Germany. The register of members and share ledger also‑shows .the President of Islamic Republic of Pakistan, acting through Director General T&T Department to be the holder of 8300 shares of Rs.1000 each in this company. Note 3 to the balance‑sheet of the company as on 30‑6‑1997 also shows that 8016 ordinary shares of Rs.1000 each were held by Govt. of Pakistan through Director General, PTCL issued for cash. The same note also shows that 5% accumulated reference shares of Rs.1000 each had been issued to Siemens A.G. Germany. However, Note 11 of the same balance‑sheet, showing debtors under the category associated undertaking also shows a balance due from PTCL. It has not been elaborated to us as to how the PTCL has become an associated undertaking if the shares of this company are not held by the PTCL. The learned DR, on the other hand, opposed the assessee's appeals placing reliable, on an order of the Tribunal, dated 27‑3‑2000 recorded in WTA No.208/IB/2000 pertaining to the assessment year 1998‑99 wherein the assessee company has been held to be a private limited company although the relief was allowed on a different ground, i.e., it was held that the assessee was not holding certain space/property for letting out purposes and thus it was held not chargeable to wealth tax. A perusal of such order also shows that the actual share holding of the company has not been considered and it has been assumed that the shares are held by PTCL. The only‑piece of evidence that was not made available at the time of hearing of these appeals was an actual copy of the share certificates allegedly issued to the Govt. of Pakistan in the name of President of Islamic Republic of Pakistan and also it could be verified from the appropriate authority in the Government of Pakistan to ascertain as to who the actual share holder in this case was. In these circumstances, we deem it appropriate to set aside the orders of the departmental officials on the issue of the assignment of status of private or public limited company and remand the matter back to the Assessing Officer to verify the actual ownership of the shares of the company. If more than 50% shares are held by the Government, then obviously the assessee has to be treated as a public company. We may add here that the relevant provision of the Income Tax Law does not distinguish between the ordinary and preference shares or any voting right. It simply lays down that a company will be treated as a public company if at least 50% of the

shares are held by the Government. Hence the Assessing Officer is directed to verify the ownership of these shares from the concerned quarters in the Govt. of Pakistan and (or) by examination of the share certificates or authenticated copies thereof in each years to establish the status of the company. The assessee's appeals on this issue are allowed to the extent indicated above.

Other Issues in Assessee's Appeals‑Assessment Year 1998‑99

17. The assessee has also challenged the setting aside of the issues of expenditures relating to voluntary separation scheme and the addition on account of liabilities' under section 25(c) of the 1979, Ordinance as well as the issue of bad debts and other receivables. It has not been established by the learned AR if any prejudice has been caused by such setting. aside. Hence we refrain from interfering on these issues.

18. As a result of the above discussion, the departmental appeal for the assessment year 1997‑98 is allowed to the extent that the issue of disallowance of expenditure is set aside with the direction as given by the First Appellate Authority in the assessment year 1998‑99 whereas the assessee's appeals are allowed to the extent that the issue of status of the company for the purpose of tax rates in all the three years is set aside with the above directions.

C.M.A./851/Tax (Trib.)Order accordingly.