COMMISSIONER OF INCOME-TAX VS PIONEER CEMENT
2005 PTD 2086
[Lahore High Court]
Before Mian Saqib Nisar and Sh. Azinat Saeed, JJ
COMMISSIONER OF INCOME-TAX
Versus
PIONEER CEMENT
I.T.As. Nos.414 and 416 of 1998, decided 15th December, 2004.
Income Tax Ordinance (XXXI of 1979)---
--Ss. 30, 31(1)(b), 66-A & 136---Entitlement of assessee to claim expenses i.e. interest paid to Financial Institution for loan---Reference to High Court---Question posed in reference was "whether the assessee was entitled to claim expenses i.e. the interest paid to financial institutions for the loan under S.31(1)(b) of Income Tax Ordinance 1979---Assessee was entitled to deduction of any amount, which he expended for the purpose of such income, which was chargeable under Income Tax Ordinance, 1979---Assessee for earning the interest upon its deposits, also had to pay the interest upon the loans procured by it and that directly was an expenditure which was expended for earning the interest and was deductible from the income of assessee under relevant head---Question stood accordingly answered.
1992 PTD (Trib.) 1142 ref.
Shahid Jamil Khan for Appellant.
M.M. Akram for Respondent.
Date of hearing: 15th December, 2004.
JUDGMENT
MIAN SAQIB NISAR, J.---The instant' I.T.A. No.414 of 1998 and I.T.A. No.416 of 1998, are being disposed of together, as all these references involve the same question of law for the determination.
2. The respondent-assessee for the purpose of establishing and running a cement manufacturing plant applied and obtained, loan from various financial institutions. After availing the loans, same were deposited by the assessee in some bank account, on which, certain amount has accrued to the assessee as interest.. Initially, the Income-tax Department did not treat such interest to be income of the assessee under section 30 of the Income Tax Ordinance, 1979, but subsequently, the provisions of section 66A were invoked by IAC, on the'ground that the amount. of interest should be in the income ,of the assessee under the section ibid and chargeable to tax. This order was challenged by the assessee before the Tribunal and the Tribunal has come to the following conclusion:--
"The principle settled in 1992 PTD (Trib.) 1142 another case relied upon by the Revenue also supports the contention that where an expense is directly relatable to the income earned is an admissible expense. In Behar Alloys Steel Limited (supra), their lordship of the Patna High Court, found for the proposition that if the amount earning interest had been borrowed the interest payable would be an allowable deduction. In the next case relied upon by the Revenue CIT v. United Wire Ropes (Supra) as well the Bombay High Court decided against the assessee as the transaction of borrowing money and its deposit in bank was not considered, as a single composite transaction. The proportionate interest paid on the amount deposited in the case before us was earned was not borrowed or that interest in terms of claim was not paid to the lender. Therefore, the assessee is held entitled to the claimed expense under section 31(1)(b) of the Ordinance."
3. The question posed in these references is, "whether the assessee is entitled to claim the expenses i.e. the interest paid to the financial institutions for the loans, under section 31(1)(b)".
4. For the purpose of answering the above, the provisions of section 31(1)(b) are reproduced as under:--
"Any expenditure, (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of earning such income."
From reading of the above provision, it is 'clear that the assessee is entitled to the deduction of any amount, which he expended for the purpose of earning such income, which is chargeable under the Ordinance. Obviously, the assessee for earning the interest upon its deposits, also had to pay the interest upon the loans procured by it, therefore, this directly is an expenditure, which is expended for earning the interest and was deductible from the income of the assessee under the relevant head. In the light of above, the answer to the question stands accordingly answered.
H.B.T./C-79/LOrder accordingly.