M.A. No.406/LB of 2003, decided on 16th March, 2004. VS M.A. No.406/LB of 2003, decided on 16th March, 2004.
2004 P T D (Trib.) 2043
[Income‑tax Appellate Tribunal Pakistan]
Before Muhammad Tauqir Afzal Malik, Judicial Member and Muhammad Munir Qureshi, Accountant Member
M.A. No.406/LB of 2003, decided on /01/.
th
March, 2004. (a) Income Tax Ordinance (XLIX of 2001)‑‑‑--
‑‑‑‑S. 221‑‑‑Income Tax Ordinance (XXXI of 1979), Ss. 156, 23(1) & 66‑A‑‑‑Application for rectification of mistake‑‑‑Penal interest‑‑‑Business expenditure‑‑‑Appellate Tribunal had held that payment made to financial institution by the assessee by way of `penal interest' for violation of terms of repayment of loan outstanding advanced to assessee by the Institution and claimed by the assessee as `business expenditure' in the final accounts and so allowed by the Assessing Officer, was not allowable as `business expenditure'‑‑‑Rectification application on the ground that such order statedly was not consistent with the order of Supreme Court of Pakistan, thus erroneous and required to be rectified‑‑ Validity‑‑‑Tribunal's judgment disposing of assessee's main appeal against the order of First Appellate Authority focused mainly on the competence of the Commissioner of Income Tax to invoke the provisions of S.66A of the Income Tax Ordinance; 1979 when according to assessee said provision could only have been properly invoked by an Inspecting Additional Commissioner‑‑‑Rectification application was a patent attempt to reargue and improve on the arguments already preferred by the assessee when arguing its main appeal against the order of First Appellate Authority, in which case the Appellate Tribunal had passed final judgment‑‑‑Appellate Tribunal did not have unlimited powers for intervention under S.221 of the Income Tax Ordinance, 2001‑‑‑In disposing of rectification application, Appellate Tribunal could only take note of error(s) floating on the face of the record and arising out of Tribunal's order‑‑‑Judgment of Supreme Court of Pakistan cited for the first time was "in stricto senso" not at par with the circumstances obtaining in assessee's case‑‑‑Banking laws were applicable in assessee's case and there was no concept of "mark‑up on mark‑up" in banking laws and that it was not the assessee's case that only normal mark‑up had been charged by the Financial Institution that was not in the nature of levy of penalty ‑‑‑Assessee had not argued that loan amount outstanding to the Institution could not be cleared in time due to any financial constraints If that had been so, the assessee was expected to move the creditor for rescheduling the repayment terms and conditions‑‑‑No such attempt had been made and the only inference therefore, must be that default on assessee's part was wilful/deliberate and hence of a criminal complexion and thus inviting punitive levy of penalty‑‑‑Rectification application was refused by the Appellate Tribunal.
PLD 2001 SC 201 distinguished.
2000 PTD (Trib.) 2668; 1996 PTD (Trib.) 244; 1983 PTD 246 and PLD 2001 SC 201 ref.
(b) Income‑tax‑‑‑
‑‑‑‑Business expediency‑‑‑Loan‑‑‑Loan default could not be legitimately seen as a mere matter of business expediency‑‑‑Indeed loan default was violative of the entire body of law pertaining to settlement of financial obligations /debtor creditor relations ‑‑‑Debtor/assessee could not be given a licence to return loan amount on its own sweet will‑‑‑Such was not business expediency, rather this was anarchy.
Mian Ashiq Hussain for Applicant.
Waqar Mehmood Khilji, D.R. and Shahid Jami Khan, LA for Respondent:
Date of hearing: 6th January, 2004.
ORDER
MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER).‑‑‑This miscellaneous application by assessee, a limited company, seeks rectification of Tribunal's order bearing I.T.A. No.1186/LB of 2002 (Assessment Year 1997‑98), dated 16‑4‑200.4, on the ground that Tribunals' cited judgment was allegedly in conflict with Hon'ble Supreme Court of Pakistan judgment cited as PLD 2001 SC 201. Sui Southern Gas Company Ltd. v. Commissioner of Income Tax, Companies‑V, Karachi and accordingly was rendered `erroneous' and was required to be rectified under section 156 of the Income Tax Ordinance, 1979 (since repealed).
2. According to the AR of applicant, in the judgment now being cited before the Tribunal (for the first time), the Apex Court had held that only such payments made by an assessee deriving business income as constituted a willful criminal violation of law did not qualify as an admissible deduction under section 23(1) of the (repealed) Ordinance and all other payments, however called (fine/penalty 'etc) that were made by an assessee by way of commercial expediency and in furtherance of the assessee's business were liable to be allowed as `business expenditure' when so claimed by the assessee in the final accounts. The AR submitted that the Apex Court had passed judgment on this very issue in the case of Sui Southern Gas Company Ltd. and the said judgment was binding on all Courts/Tribunals in Pakistan and as the Tribunal in its cited judgment had passed. an order that statedly was not consistent with the Apex Court judgment insofar as the Tribunal had held that payment made to NDFCI by the assessee in the assessment year 1997‑98 by way of `penal interest' for violation of terms of repayment of loan outstanding advanced to assessee company by NDFC and claimed by the assessee as `business expenditure' in the final accounts and so allowed by the Assessing Officer was not allowable as `business expenditure' when as per the Apex Court judgment now being cited before the Tribunal the said order of the Tribunal was an erroneous order and was required to be rectified.
3. The AR of applicant has cited the following case law before the Tribunal to substantiate arguments made by him referred to supra:‑‑
PLD 2001 SC 201, 2000 PTD (Trib.) 2668, 1996 PTD (Trib.) 244 and 1983 PTD 246.
4. The Legal Adviser arguing the case for Revenue opined that the Supreme Court of Pakistan judgment in Sui Southern Gas Company Ltd. case cited by the applicant was not at par with the case of the assessee "in stricto senso". It was explained that in assessee's case loan amount outstanding to NDFC by the assessee company had not been cleared by the due date and had resulted in levy of penal interest. According to the LA, it was not the assessee's case that simply "mark up on loan" advanced to assessee by NDFC having not been paid had resulted in levy of penalty interest. Rather, the assessee after having failed to clear outstanding loan within stipulated time frame had resulted in levy of penal interest by the creditor which was not the same as charge of "mark up". The LA further elaborated that there was no concept of "mark‑up on mark‑up" in banking law. Thus the nature of the infraction in the case presently before the Tribunal was significant and the same was asserted by the LA to be distinguishable from the Sui Southern Gas Company Ltd. case which was relied upon by the applicant for invocation of the provisions of section 221 of the Income Tax Ordinance, 2001 read with section 156 of the Income Tax Ordinance, 1979 (since repealed).
5. According to the LA, in the Sui Southern Gas Company Ltd. case, the said company had made late payment of natural gas development surcharge to the Federal Government and was as a consequence required to pay interest to the Federal Government @ 12 % per annum. "In stricto senso.", this situation was not at par with the situation facing the assessee company and in which situation banking laws were involved which was not so in the Sui Southern Gas, Company Ltd., case.
6. The LA for the Income Tax Department further argued that per the provisions of section 221 of the Income Tax Ordinance, 2001 only error patent on the face of record could be taken up for rectification and there was no sanction for rehearing an appeal. It is the LA's contention that the assessee company is in fact rearguing its main appeal against the order of the CIT, Special Zone passed under section 66A that had already been decided by the Tribunal vide I.T.A. No. 1186/LB of 2002 (Assessment year 1997‑98), dated 16‑4‑2003. The LA emphasized that when argued the main appeal against the order of the CIT, Special Zone, Lahore, the assessee did not refer to the Sui Southern Gas Company Ltd. case at all and made no attempt to show that payment of penal interest amounted to mere violation of contractual obligations and that the same fell within the purview of "business expediency". Rather, the assessee's stance before the Tribunal had been that the Commissioner of Income Tax, Special Zone, Lahore, was not competent in law to exercise the powers of IAC and pass order under section 66A of the Income Tax Ordinance, 1979 (since repealed). It was submitted by the LA that .he assessee company in its present application had taken a dramatically different ground altogether which amounted to reappraisal/rearguing and even improvement of the earlier presentation of its appeal before the Tribunal which was not permissible in law.
7. The AR of applicant company denied that any attempt had been made by the assessee through its present application to reargue its earlier appeal before the Tribunal against the order of the CIT, Special Zone. The AR submitted that the applicant had merely cited pertinent case law that statedly provided justification for rectification of Tribunal's judgment in main appeal filed by the assessee company against the order of the CIT, Special Zone.
8. We have heard both sides and have examined the available record and our findings are recorded as under:‑‑
(1)In our considered judgment, there has indeed been a dramatic shift in assessee company's stance in the present application filed before the Tribunal. Tribunal's judgment disposing of assessee's main appeal against the order of the CIT Special; Zone, Lahore, focuses mainly on the competence of the' Commissioner of Income Tax, Special Zone, Lahore, to invoke the provisions of section 66A of the Income Tax Ordinance, 1979 (since repealed) when according to the assessee this provision could only have been properly invoked by an IAC. In our opinion, the present rectification application filed by the assessee is a patent attempt to reargue and improve on the arguments already preferred by the assessee when arguing its main appeal against the order of the CIT, Special Gone, Lahore, in which case the Tribunal has passed final judgment This Bench does not have unlimited powers for intervention under B section 221 of the Income Tax Ordinance, 2001. In disposing of this present rectification application this Bench can only take note of error (s) floating on the face of the record and arising out of Tribunal's order bearing I.T.A. No. 1186/LB of 2002 (Assessment Year 1997‑98), dated 16‑4‑2003. As explained supra, the Supreme Court of Pakistan judgment cited before this Tribunal for the first time is, "in stricto senso." Not at par with the circumstances obtaining in assessee company's case. The LA, for Revenue has rightly pointed out that banking laws are appi:,7able in assessee company's case and that there was not concept of "mark‑up on mark‑up" in banking laws and that it was not the assessee's case that only normal mark‑up has been charged by the creditor (NDFC) that was not in the nature of levy of penalty. The assessee has not argued before us that loan amount outstanding to NDFC could not be cleared in time due to any financial constraints. Indeed if that had been so, the assessee was expected to move ‑the creditor for rescheduling the, repayment terms and conditions. No such attempt has been made in this case and the only inference therefore, must be that default on assessee company's part is wilful/deliberate and hence of a criminal complexion and thus inviting punitive levy of penalty.
(2)The Tribunal is of the considered view that loan default cannot be legitimately seen as a mere matter of business expediency. Indeed loan default is violative of the entire body of law pertaining to settlement of financial obligations/debtor creditor relations. Obviously, a debtor (such as the assessee company) cannot be given a licence to return loan amount when it is its sweet will to do so. This is not business expediency. Rather, this is anarchy.
(3)For the reasons recorded supra, the present application is refused.
C.M.A./126/Tax(Trib.)Application rejected.