I.T.As. Nos.762/LB, 763/LB of 2002, 2457/LB and 2458/LB of 2004, decided on 15th June, 2005. VS I.T.As. Nos.762/LB, 763/LB of 2002, 2457/LB and 2458/LB of 2004, decided on 15th June, 2005.
2006 P T D (Trib.) 1248
[Income-tax Appellate Tribunal Pakistan]
Before Ehsan ur Rehman, Judicial Member and Naseer Ahmad, Accountant Member
I.T.As. Nos.762/LB, 763/LB of 2002, 2457/LB and 2458/LB of 2004, decided on 15/06/2005.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 34, 30, Second Sched., cls. (118D) & (99)---Set off of losses---Income from other sources---Exemption---Assessee was enjoying exemption under cl. 118-D of the Second Schedule of the Income Tax Ordinance, 1979---Nil income was assessed but Assessing Officer treated the other income as taxable under S.30 of the Income Tax Ordinance, 1979 and assessed accordingly and did not set off against exempt income---Validity---Total income was to be computed which may include exempt income---If exempt income was positive or negative the same was to be computed---While computing the exempt income/loss the Assessing Officer could not probe the trading result and if he was satisfied that the exempt income or loss declared was from the exempt source then he had to accept the declared version of exempt income/loss subject to statutory additions including that of tax depreciation---If there was no other .income then the declared exempt income/loss would be computed as total income---In case there was other income which was taxable then the same was to be included in the positive exempt income and total income from exempt and non-exempt sources was to be computed, however, tax was to be charged on taxable income only---In case there was taxable income from other sources and there was business loss of exempt income then as per provisions of 34 of the Income Tax Ordinance, 1979 taxable income was to be set off against exempt (loss) separately from the taxable income from other sources---First Appellate Authority was not justified to remand the case to the Assessing Officer---Appeals were accepted and orders of the authorities below were vacated---Assessing Officer was directed to accept the declared exempt income/loss and to set off the taxable income from other sources against loss of exempt income as had been envisaged under S.34 of the Income Tax Ordinance, 1979.
2000 PTD 359 and 1999 PTD (Trib.) 1528 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 2(24)(44), 11(1) & 14(1), proviso---Income---Income includes loss of income profits or gains and "total income" means total amount of income from all the sources---Total income was to be computed in the manner laid down under the Income Tax Ordinance, 1979 irrespective of the fact that the same was taxable or exempt and the total income may include income which was exempt from tax and if the entire income was exempt even then total income was to be computed whether it was positive income or negative (loss).
(c) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., cls. (18D), (99) & S. 2(24)(b)---Second Sched., cl. (99) of the Income Tax Ordinance, 1979 provided that' the expression "income" had been used as against expression "profit and gains" used in cl. (118D) of the Second Schedule of Income Tax Ordinance, 1979---Definition of "income" contained in S.2(24)(b) of the Income Tax Ordinance, 1979 provided that "income" included "income, profits and gains" and even loss of income, profits and gains.
?
Shahid Pervez Jami for Appellant.
Muzammil Hussain, D.R. for Respondent.
Date of hearing: 14th June, 2005.
JUDGMENT
NASEER AHMED (ACCOUNTANT MEMBER).---The titled appeals have been filed by the assessee against two separate orders recorded by the learned CIT(A) Zone-III, Lahore. Against the first order passed by learned CIT(A), dated 20-12-2002 the assessee has agitated the assessment of income amounting to Rs.72,735 and Rs.332,667 from other sources and then setting off the same against the declared loss of
Rs.27,141,964 and Rs.1,817,938 respectively for the assessment years 1997-98 and 1998-99. In the other set of appeals for the assessment years 1997-98 and 1998-99 the assessee has agitated that the learned CIT(A) was not justified to reject the appeals on the ground of limitation.
2. Brief facts giving rise to the present appeals are that the assessee, a private limited company, derives income from processing, dyeing and bleaching of yarn and cloth. Returns were filed to declare loss at Rs.27,141,964 and Rs. 1,817,938 respectively for the years 1997-98 and 1998-99. Partial books of accounts were produced in support of the declared version on the plea that the unit was closed. Since the assessee was enjoying exemption under clause (118D) the Assessing Officer assessed the income at nil for both the years. From the perusal of accounts the Assessing Officer observed that the assessee earned other income amounting to Rs.72,735 and Rs.332,667 respectively for the two years under consideration. Since the exemption was for a specific trading activity therefore, the Assessing Officer treated the other income as taxable under section 30 and assessed accordingly. The assessee being aggrieved went in appeal before the learned first appellate authority. It was contended before him that under section 34 of the Ordinance an assessee is entitled to have the amount of loss set off against his income if any under any other head assessable for that assessment and under the circumstances the Assessing Officer was bound to set off the income against the declared loss. The learned first appellate authority, therefore, remanded the case to the Assessing Officer with the direction to decide the matter afresh keeping in view the relevant provisions of law and facts of the case.
3. In re-assessment proceedings the Assessing Officer determined the loss at Rs.5,700,002 for assessment year 1997-98 whereas for the assessment year 1998-99 income was assessed at Rs.3,794,024. The assessee again feeling dissatisfied with the treatment accorded by the Assessing Officer went in appeal before the learned first appellate authority who dismissed the appeals filed by the assessee being barred by time.
4. The appeals filed by the assessee against the first and second round of assessments are disposed off through this consolidated assessment order.
5. Learned AR of the assessee has pleaded that learned first appellate authority was not justified to remand both the issues instead of deciding the same as per law and case-law on the subject. He relied upon judgment of the Sindh High Court reported as 2000 PTD 359 and judgment of the Appellate Tribunal reported as 1999 PTD (Trib.) 1528. He pointed out that the judgment of the High Court is dated 4-9-1999 and judgment of the Appellate Tribunal is dated 30-11-1998 and as such the judgment of the High Court was not before the Appellate Tribunal. The AR argued that in spite of that both the judgments are in harmony and supplement each other. He pleaded that in the judgment of the High Court it has been held with reference to clause (99) of Second Schedule that when the Assessing Officer is satisfied that the income declared is from the exempt source of fish catching then he has no jurisdiction to proceed or probe further with regard to the declared sales, gross profit rate etc. in relation to such income and he has no jurisdiction/authority to reject the declared sales, gross profit rate and to make estimation in regard to them and had to accept the declared results of such income. The AR argued that since the Assessing Officer had accepted the claim of exemption of income under clause (118D) he had no jurisdiction to discard the declared version wherein adjustment of other income towards business loss stood already made. The AR concluded that the learned CIT(A) was also not justified to remand the case when the issue involved was legal and he was in a position to decide the same. The AR has not pressed ground regarding the claim of exemption of other income.
6. The learned DR has supported the order of authorities below, however, he could not point out any judgment contrary to that on which reliance has been made by the AR.
7. We have given due consideration to the respective arguments and reliances. Before further discussion and adjudication it would be appropriate to reproduce the text of all the relevant provisions of the repealed Ordinance.
Definition of income
"(24) "Income" includes-
(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 15;
(b) any loss of such income, profits or gains; and
(c) any sum deemed to be income, or income accruing or arising or received in Pakistan under any provision of this Ordinance."
Definition of total Income
"(44) "total income" means the total amount of income referred to in section 11 computed in the manner laid down in this Ordinance, and includes any income which under any provision of this Ordinance is to be included in the total income of an assessee."
Section 11(1)
"(11) Scope of total income.-(1) Subject to the provisions of this Ordinance, the total income, in relation to any assessment year, or a person,--
(a) Who is a resident, includes all income from whatever source derives, which---
(i) is, received, or is deemed to be received, in Pakistan in the income year by, or on behalf of, such person; or
(ii) accrues or arises, or is deemed to accrue or arise to him in Pakistan during such year; or
(iii) accrues or arises to him outside Pakistan during such year;"
Proviso to section 14(1)
"Provided that where any income which is exempt from tax under any provision of the Second Schedule, such income as may be. specified in the said Schedule and subject to such conditions as may be specified therein, shall be included in the total income so however that the tax shall not be payable in respect of such income."
8. From the combined reading of the aforesaid provisions it is evident that "income" includes loss of income, profits or gains and "total income" means total amount of income from all the sources. The total income is to be computed in the manner laid down under the Ordinance irrespective of the fact that the same is taxable or exempt and the total income may include income which is exempt from tax and if the entire income is exempt even then total income is to be computed whether it is positive income or negative (loss). In clause (99) of the Second Schedule involved in the judgment of the High Court relied upon by the AR the expression "income" has been used as against expression "profit and gains" used in clause (118D). From the definition of "income" contained in section 2(24)(b) as reproduced above it is evident that "income" includes "Income, profits and gains" and even loss of income, profits and gains. Therefore, the following principle laid down by the High Court in 2000 PTD 359 is squarely applicable to the appellant whose exemption under clause (118D) of profits and gains has been accepted by the Assessing Officer,---
"With regard to the third question, the answer to the same can be found from our discussion relating to question No.2. Once the Income Tax Officer had come to the conclusion that a particular income declared by the respondent, which was claimed to be from fishing/fish catching, was actually found to be from this source then in view of clause (99) of the Second Schedule to the Income Tax Ordinance, exempting such income from charge to tax, the Income Tax Officer had no jurisdiction to proceed or probe further with regard to the declared sales, gross profit rate, etc. in relation to such income. He had no jurisdiction/authority to reject the declared sales or gross profit rate. and to make estimation in regard to them and had to accept the declared results of such income. In view of the above, this question is also answered in affirmative."
9. When the provisions reproduced above are interpreted in the light of judgment of Sindh High Court and Appellate Tribunal reported as 2000 PTD 359 and 79 Tax 115 respectively it follows that total income is to be computed which may include exempt income. Similarly, if the exempt income is positive or negative the same is to be computed. However, while computing the exempt income/loss the Assessing Officer cannot probe. the trading result as per principle laid down by the High Court and if he is satisfied that the exempt income or loss declared is from the exempt source then he has to accept the declared version of exempt income/loss subject to statutory additions including that of tax depreciation. If there is no other income then the declared exempt income/loss would be computed as total income. In case there is other income which is taxable then the same is to be included in the positive exempt income and total income from exempt and non-exempt sources is to be computed however tax is to be charged on taxable income only. However, in case there is taxable income from other sources and there is business loss of exempt income then as per provisions of section 34 of the Income Tax Ordinance, 1979 the taxable income is to be set off against exempt-(loss) separately the taxable income from other sources. Similarly, the CIT(A) was not justified to remand the case back to the Assessing Officer in view of the aforesaid express provisions of law and the judgments of the High Court as well as of the Income Tax Appellate Tribunal which stood reported before the decision of the first appellate authority. In the light of aforesaid discussion both the appeals are accepted and the orders of the authorities below are vacated. The Assessing Officer is directed to accept the declared exempt income/loss in both the years and to set off the taxable income from other sources against loss of exempt income as has been envisaged under section 34 of the repealed Ordinance. The ground pertaining to claim of exemption of other income is not being adjudicated as the same has not been pressed by the AR.
I.T.As. Nos. 2457 and 2456/LB of 2004: (Assessment Years 1997-98 and 1998-99)
10. The background of these appeals are that when in the first round the learned first appellate authority remanded the case back to the Assessing Officer he made fresh assessments under sections 62/132 which were again contested before the CIT(A). In second round these appeals were dismissed on point of limitation. Against which the appellant company has filed second appeal before this Tribunal. In view of discussion and decision in respect of earlier round of litigation in I.T.As. Nos.762 and 763/LB of 2002 these appeals have become infructuous.
11. All the four appeals filed by the assessee are disposed off in the manner discussed above.
C.M.A./506/Tax(Trib.)???????????????????????????????????????????????????????????? Order accordingly.