I.T.As. Nos. 6053/LB of 2004, 6030/LB, 6031/LB of 2003, 6641/LB, 43/LB and 44/LB of 2004, decided on 24th September, 2005. VS I.T.As. Nos. 6053/LB of 2004, 6030/LB, 6031/LB of 2003, 6641/LB, 43/LB and 44/LB of 2004, decided on 24th September, 2005.
2006 P T D (Trib.) 1292
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Raja Sikandar Khan, Accountant Member
I.T.As. Nos. 6053/LB of 2004, 6030/LB, 6031/LB of 2003, 6641/LB, 43/LB and 44/LB of 2004, decided on 24/09/2005.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 23(1)(x)---Deductions---Banking Company---Provision for bad debts---Assessing Officer disallowed provision for' bad debts on the ground that assessee had not fulfilled all the conditions for admissibility laid down in S.23(1)(x) of the Income Tax Ordinance, 1979---First Appellate Authority deleted such addition by relying on Appellate Tribunal's judgments which disapproved such disallowances in case of banks working under the regulatory control of State Bank of Pakistan---Validity---Contention of department that various judgments of Appellate Tribunal on the issue were conflicting and contradictory in nature carried force but at the same time pre-empting the jurisdiction of High Court by judgment of a larger Bench of the Tribunal would not be appropriate---Appellate Tribunal upheld the decision of First Appellate Authority :deleting the additions made on account of provision- for bad debts.
2002 PTD (Trib.) 1898; (2002) 85 Tax 245 (Trib.); 2003 PTD (Trib.) 1189; R.A. No.349/LB of 2002, I.T.As. Nos.2715 and 2716/LB of 1999; 1997 PTD 71; 2006 PTD (Trib.) 356 and Muhammad Inayatullah Cheema v. Sardar Masood Qazilbash 2002 PTD 1195 rel.
I.T.A. Nos. 5531/LB of 1996; Nos. 45, 46, 6362, 88, 89, 6054 to 6057/LB of 2004 and 1985 PTD 413 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
-----S. 23(1)-Deductions---Banking company---Interest credited to suspense account---Assessee credited mark-up to suspense account instead of profit and loss account---Assessing Officer rejected assessee's contention that it could be taxed on actual receipt basis but was taxable on accrual basis---First Appellate Authority relying on various judgments deleted the addition---Department contended that since assessee was maintaining its account in mercantile system the interest was chargeable to tax on accrual basis---Validity---Since deletion of interest credited to suspense account was made on the basis of cases decided by the Appellate Tribunal, order of First Appellate Authority was upheld by the Tribunal.
Muslim Commercial Bank v. IAC I.T.A. No.123 of 1999; Habib Bank Ltd. v. DCIT I.T.A. No.270 of 1999; (2002) 85 Tax 245 (Trib.); I.T.A. No. 2715 and 2716/LB of 1999; I.T.A. No. 5013/LB of 2000, I.T.A. No. 1082/LB of 2000; I.T.A. No. 1658/LB of 2003 (Trib.); I.T.A. No.1658/LB of 2003; I.T.As. Nos. 966 to 968/LB of 2002, 705/LB, 5961 and 5963/LB of 2004 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----First Sched. & S. 30(2)(a)---Rate of income tax---Banking Company--Dividend---Contention of revenue was that First Appellate Authority was not justified to direct that dividend income of a banking company which could also be a public company should be subjected to concessionary rate of tax at 5% instead of the normal banking company rate---Assessee contended that banking company could also be a public company the dividend income of which was assessable at the rate of 5% under First Schedule of the Income Tax Ordinance, 1979---Validity---Banking company being a public company also Appellate Tribunal upheld the application of tax rate of 5% to its dividend income.
2000 PTD (Trib.) 507 rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 62, proviso---Assessment on production of accounts, evidence etc.---Banking company---Profit and loss additions---Additions were deleted by the First Appellate Authority on the grounds that additions were made merely on assumptions and conjectures; that Assessing Officer did not point out any specific instance of non-business nature or un-verifiability of any expense and also did not issue any specific notice in terms of proviso to S.62 of the Income Tax Ordinance, 1979; that accounts of scheduled banks were subject to audit control and strict scrutiny of the State Bank and were regularly audited by internal, external and State Bank's auditors and that confrontation of some specific instance especially in the presence of proviso to S.62(1)' of the Income Tax Ordinance, 1979 were required---Validity---First Appellate Authority was justified in deleting the add backs from the profit and loss account as no specific instance of non-business or unverifiable expense was pointed out---Banks were under the control of State Bank of Pakistan and external as well as internal auditors---Such additions without any sufficient justification could not be sustained and were liable to be deleted---Order of First Appellate Authority was upheld by the Appellate Tribunal.
I.T.A. No. 1913/KB of 1998 rel.
(e) Income-tax---
----Add back of expenses---Banking company---Allocation of expenses relatable to exempt capital gain---Addition deleted by the First Appellate Authority on the basis of decided cases of Appellate Tribunal was impugned by the Department on the ground that allocation of expenses to exempt capital gain on sale of shares was rightly made by the Assessing Officer as income to which these expenses were allocated was not taxable being exempt---Validity---Since First Appellate Authority followed the judgments of Appellate Tribunal on this issue, order on this point was upheld by the Appellate Tribunal.
I.T.A. No.106/LB of 2000; I.T.A. 1658/LB of 2003; (2004) 90 Tax 128 (Trib.); I.T.As. Nos. 1066 to 1073/IB of 2004; I.T.A. No.966 to 968/LB of 2002, 205/LB of 2004, 5961 and 5962/LB of 2004 ref.
(f) Income-tax---
----Add back of expenses---Banking company---Fee and subscription---Fee paid to the Securities and Exchange Commission of Pakistan was disallowed holding same to be of capital nature made in respect of share capital---Assessee contended that such expenditure had no connection with enhancement of share capital of the bank but it was paid in connection with business of the bank and was not capital in nature---Addition was deleted by the First Appellate Authority---Validity---Order of First Appellate Authority was maintained by the Appellate Tribunal as the arguments of the assessee could not be controverted by the department.
(g) Income-tax---
----Add back of expenses---Banking company---Expenses on opening of new branches---Expenses were disallowed by holding them to be capital in nature---Assessee contended that expenses were incurred on publicity of new branches opened for promotion of its business---First Appellate Authority allowed such expenses incurred for business purposes---Order of First Appellate Authority was confirmed by the Appellate Tribunal being not controverted by the department.
137 ITR 652 and 168 ITR 731 rel.
(h) Income-tax---
----Bad debts actually written off---Add back of---Banking company---Bad debts claimed as actually written off were disallowed on the ground that the same were not irrecoverable as the ray of hope was still there---Addition was confirmed by the First Appellate Authority---Assessee contended that debts were actually written off because of its irrecoverability which meant not that the amount of debt was gone for ever but that the chances of its recovery were extremely remote---If bad debt which was written off was recovered in subsequent period it was taxable as income under S.25(aa) of the Income Tax Ordinance, 1979---Not in the interest of bank to claim debt as bad which was subsequently liable to be added to its income on recovery, it was only in cases where chances of recovery were extremely remote that the debt had been claimed to be bad and written off as irrecoverable---Disallowance was ordered to be deleted by the Appellate Tribunal.
2002 PTD (Trib.) 1898; 85 Tax 245 (Trib.) and I.T.As. Nos.1066 to 1073/IB of 2004 rel.
(i) Income-tax---
----Banking company---Provisions for non-banking assets---Dis?allowance---Such provision was disallowed on the ground that it was a mere provision and none of the assets had been disposed of as such provision had no relevance to the actual loss---Addition was confirmed by the First Appellate Authority on the ground that no actual loss was incurred on disposal of any asset, as only the actual loss on disposal of the asset was allowable deduction---Assessee contended that non-banking assets in question related to recoveries made against loans from debtors that constituted stocks in trade of the banks and any loss incurred was allowable under the established accounting principles---Validity---Assessee did not give sufficient evidence to establish before Assessing Officer that provision for non-banking assets was not merely an unascertained provision but was actual liability incurred which was liable to be allowed as deduction---Order of First Appellate Authority disallowing the claim of such provision was upheld by the Appellate Tribunal.
(j) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Part-IV, cl. (3) & S.24(i)---Banking company---Allowance of perquisites paid by certain corporations---Deductions not admissible---Excess perquisites---Word `or' used in cl.(3) of Part-IV of the Second Schedule of the Income Tax Ordinance, 1979 had a conjunctive import---Said clause was applicable only to such banks which were owned and controlled by the Federal Government---Since bank was not controlled by the Federal Government, the benefit of the clause could not be extended to it---Addition made by the Assessing Officer on account of excess perquisites under S.24(i) of the Income Tax Ordinance, 1979 and confirmed by the First Appellate Authority was upheld by the Appellate Tribunal.
1999 PTD 2901 and 1991 SCMR 2164 ref.
(k) Income Tax Ordinance (XXXI of 1979)---
----S. 24(i)---Banking-company---Deductions not admissible---Provisions for concessional loans---Addition of---Validity---Provisions of S.24(i) of the Income Tax Ordinance, 1979 were attracted where the expenditure was "incurred" in providing a perquisite---Since no expenditure was incurred by the bank on provision of concessional loans, this would not be a perquisite falling under the provision of S.24(i) of the Income Tax Ordinance, 1979---Since bank/assessee did not incur any expenditure in provision of concessional loan, additions made by the Assessing Officer on concessional loans were ordered to be deleted by the Appellate Tribunal.
?
I.T.A. No.652/KB of 1999-2000 Per incurium
(1988) 173 ITR 290 rel.
(l) Income Tax Ordinance (XXXI of 1979)---
----S. 24(i)-Income Tax Rules, 1982, Rr. 3-18---Deductions not admissible---Application and explanations of the provisions---Perquisite for purposes of taxation had two aspects---One aspect was its taxability in the hands of the employer which was covered under S.24(i) of the Income Tax Ordinance, 1979 and the other aspect was the taxability of perquisites in the hands of the employee which were computed in accordance with Rr. 4-18 of the Income Tax Rules, 1982---If an employee had been provided a benefit perquisite on concessional rate, it will be a perquisite in the hands of the employee under R.18 of the Income Tax Rules, 1982 and the amount which would have been expended by the employee in obtaining such benefit or perquisite from an independent source as reduced by the amount if any actually paid by him in cash would be added to his income.
(m) Income Tax Ordinance (XXXI of 1979)---
---S. 24(i)-Deductions not admissible---Income Tax Rules, 1982, Rr.3 & 18---Concessional loan---Benefit of concessional loan was liable to be added to the salary income of the employee under R.18 read with R.3 of the Income Tax Rules, 1982.
(n) State Bank of Pakistan Act (XXXIII of 1956)-
---Ss. 54-A & 46-B---Banking Companies Ordinance (LVII of 1962), Ss.91-A & 35---Income Tax Ordinance (XXXI of 1979), Preamble---Provisions to override other laws---Inconsistent directives not to be issued---Application of other laws barred---State Bank of Pakistan Act, 1956 and Banking Companies Ordinance, 1962 were enactments prior to the Income Tax Ordinance, 1979---Provisions of said enactments would not override a law made subsequently---Contention that provisions of Income Tax Ordinance, 1979 were excluded to the extent of provisions made in the State Bank Regulations made under the State Bank Act, 1956, was not tenable.
(o) Income Tax Ordinance (XXXI of 1979)---
---S.5---State Bank of Pakistan Act (XXXIII of 1956), Ss.54-A & 46-B--Banking Companies Ordinance (LVII of 1962), Ss.91-A & 35---Income Tax Ordinance (XLIX of 2001), S.3---Jurisdiction of Income-tax authorities---Overriding effect of other laws---Authorities under the Income Tax Ordinance, 1979 as laid down in S..5, exercise their jurisdiction subject to the provisions of the Income Tax Ordinance, 1979---If effect of any other law was to be given notwithstanding the provision of Income Tax Ordinance, 1979 then a specific provision was made in the Income Tax Ordinance, 1979 giving effect to such provision of that other law---Prudential Regulations of the State Bank of Pakistan or the Companies Ordinance, 1962 would not override the provision of Income Tax Ordinance, 1979 as no specific effect had been given to these provisions in the Income Tax Ordinance, 1979.
(p) Income Tax Ordinance (XXXI of 1979)---
----S. 24---Deductions not admissible---Renovation, written off---Assessee had written off renovation as it shifted its head office to another place---Assessing Officer disallowed some portion out of such amount on the ground that assessee did not provide details of assets written off--Assessee contended that amount related to times which were fixed in nature and could not be removed from their position and the bank had to surrender them---First Appellate Authority upheld the same being reasonable and no solid evidence was produced---Validity---Assessee had not submitted any further argument except what was said earlier before First Appellate Authority---Appellate Tribunal declined to interfere with such order and addition on this point was upheld.
?
(q) Income Tax Ordinance (XXXI of 1979)---
- S. 24(i)---Deductions not admissible---Commercialization fee paid to Development Authority---Fee paid to Development Authority was disallowed being inadmissible under S.24(i) of the Income Tax Ordinance, 1979 as it was penalty---Assessee submitted before First Appellate Authority that same was not a penalty but commercialization fee which was admissible---No evidence in support of the contention having been produced order of Assessing Officer was upheld---Appellate Tribunal found no reason to differ with the order of First Appellate Authority which was maintained.
Dr. Ikram-ul-Haq for Appellant (in I.T.As. Nos.6053/LB of 2004, 6030/LB and 6031/LB of 2003).
Javaid Iqbal Rana IAC, LTU and Dr. Ishtiaq Ahmad, DCIT for Respondent (in I.T.As. Nos.6053/LB of 2004, 6030/LB and 6031/LB of 2003).
Javaid Iqbal Rana IAC, LTU and Dr. Ishtiaq Ahmad, DCIT for Appellant (in I.T.As. Nos. 6641/LB, 43/LB and 44/LB of 2004).
Dr. Ikram-ul-Haq for Respondent (in I.T.As. Nos. 6641/LB, 43/LB and 44/LB of 2004).
Date of hearing: 24th September, 2005.
ORDER
These are cross appeals by the Revenue and the assessee against order of the CIT(A) vide Nos. 767, 160 & 225, dated 2-9-2004, 8-10-2003. The various grounds of appeal and the issues involved therein are as follows:--
Department, is aggrieved on the following issues:--
"(1)????? Provision for bad debts????????????? 2000-01 to 2002-2003
(2)??????? Interest credited to suspense
account???????????????????????????????????????????????? 2000-01, 2001-2002
(3)?????? Taxation of dividend income??????
??????????? at concessionary rate of 5%?????? 2001-02, 2002-03
(4)?????? Profit & Loss addition??????????????? 2000-2001
(5)?????? Allocation of expenses relatable?
??????????? to exempt capital gain.??????????????? 2000-2001 to 2002-2003
(6)?????? Fee and subscription????????????????? 2002-2003
(7)?????? Expenses on opening of new?????
??????????? branches.?????????????????????????????????? 2002-2003
??????????? Assessee is aggrieved on the following issues.
(1)?????? Bad debts actually written of????????????? 2001-2002??
(2)?????? Provision for non-banking assets??????? 2001-2002??
(3)?????? Excess perquisites???????????????????????????? 2000-2001 to???? 2002-2003
(4)?????? Concessional loans??????????????????????????? 2001-2002??
(5)?????? Provision for diminuation of??????????????? ???????????????????
??????????? investment???????????????????????????????????????? 2000-2001??
(6)?????? Renovation written off??????????????????????? 2001-2002??
(7)?????? Commercialization fee paid to LDA?? 2001-2002??
Learned AR and the DR have been heard.
These are decided as follows:--
Provision for bad debts.
The assessee made a provision for bad debts of Rs.305,750,000 for 2000-2001, Rs.34,361,000 for 2001-2002 and Rs.89,281,000 for 2002-2003. These were disallowed by the Assessing Officer treating them as inadmissible under section 23(1)(x) as the assessee had not fulfilled all the conditions for admissibility laid down in the said section. The disallowances were contested in appeal before the CIT(A) on the ground that the Appellate Tribunal in its various judgments disapproved such disallowances in case of banks working under the regulatory control of State Bank of Pakistan. In this regard following cases decided by the Appellate Tribunal were relied upon:--
"2002 PTD (Trib.) 1898.
In view of the above we hardly have any reason to disagree with learned AR. The disallowance made and confirmed under the argument that the State Bank of Pakistan did not confirm it is not a valid reason, as the law does not impose any such restriction. This argument may be used as support but cannot be considered as an embargo. The bank itself is the best judge to determine as to what part of its bad debts requires writing off. Under no stretch of imagination a businessman of an ordinary prudence specially a bank would write off a debt only to save the taxes as this way he losses more than what he appears to gain. Further the other provision of law protects it in a very rightful manner i.e. if such written off bad debts are subsequently received these can be added in income and are taxable.
As a result of above discussion we hold that action of the ITO as well as of the CIT is not based upon correct appreciation of the facts of the law. The same, therefore, is disapproved. This obviously leads to the conclusion that the bad debts claim of the assessee shall be allowed.
(ii) (2002) 85 Tax 245 (Trib.).
We have already held that it is but the Bank who can decide as to what part of its loan has become bad and under what circumstances he has to write it off. This shall obviously be in compliance to the instructions contained in Prudential Bank Regulations by the State Bank of Pakistan. The first judgment in this regard was in the case of union Bank, which has since been followed by this Tribunal and other authorities. In fact, even in this case this Tribunal has allowed bad debts and its provision for the other years after discussing in detail that this in fact is not a provision but actually writing off as per law. The assessee case, therefore, is decided in his favour and the department is instructed to allow this provision for bad debts by considering it as actual written off on the basis of instructions contained in earlier judgments.
(iii) 2003 PTD (Trib.) 1189
While deciding this issue in the case of Union Bank Ltd., the Tribunal found that this provision of bad debts is, in fact, not a provision. It is an actual write off, however, the Bank under the law is not supposed to completely ignore this amount as the ray of hope remains and for that purpose it is kept in suspense account. This Tribunal, therefore, following the direction of the honourable High Court Sindh has held that the day a bank believes that a part of its loan has become bad and charges it in its profit and loss account it becomes an allowable expense. The Tribunal also felt that a Banking company could never declare its loans to be as bad just to save the taxes as this way the company looses more than the apparent gains.
"Here, again we are convinced that provision for bad and doubtful debts having been made by the bank after being convinced that it is not recoverable under his own method of accounts and prudential Bank Regulations under which the Bank is operating itself was not to be disallowed."
(iv) R.A. No.349/LB of 2002.
The department proposed following question of law in reference application under section 136(1):
"Whether on the facts and circumstances of the case, the learned ITAT was justified to hold that "provision for bad debts" is synonymous with actually written off" and therefore allowable under section 23(1)(c) of the Income Tax Ordinance, 1979 without being determined irrecoverable"
The learned Tribunal rejected the reference application with the following observation:-
"We have gone through the relevant record with the help of learned AR as well as DR. The Assessing Officer has considered this claim to be a provision, which has accordingly been treated by the CIT(A). The Tribunal, however, found that both the officers below were not justified in holding that this was a provision. This was an actual written off and in this regard the reliance of Tribunal was on the judgment reported as (1967) 34 Tax 158 authored by learned Mr. Justice Durab Patel as he then was of Sindh High Court."
Relying upon the above judgments of the Appellate Tribunal, the CIT(A) deleted all the additions made by the Assessing Officer on account of provision for bad debts. The AR has in addition to reiterating the same arguments and the decided cases has further submitted that this issue has already been decided by the learned ITAT in appellant's own case for assessment years 1998-99 to 1999-2000 in I.T.A. No.2715 and 2716/LB of 1999, dated 28-11-2001. The department moved reference applications proposing following question of law on this issue:
"Whether on the facts and circumstances of the case, the learned ITAT was justified to hold that "provision for bad debt" is synonymous with "actually written off" and, therefore, allowable under section 23(1)(x) of the Income Tax Ordinance, 1979 without being determined irrecoverable"
This honourable Tribunal in its order No.RA 348 and 349 of 2002, dated 17-772002 rejected the reference application with the following observations:
"The Tribunal, however, found that both the officers below were not justified in holding that this was a provision. This was an actual written off and in this regard the reliance of the Tribunal was on the judgment reported as (1967) 34 Tax 158 authored by learned Mr. Justice Durab Patel as he then was of Sindh High Court."
The learned AR further submitted that the department has filed direct reference in terms of section 136(2) of Income Tax Ordinance, 1979 against this order which is pending before honourable Lahore High Court. Rule of consistency, as enunciated by honourable Supreme Court of Pakistan in (1999) 79 Tax 1 (SC Pak) and relied upon by this learned Tribunal in (2005) 91 Tax 484 (Trib.) in the case of Muslim Commercial Bank requires that all like cases should be treated in the like manner. The learned AR thus pleaded that since the matter is sub judice before honourable Lahore High Court, it is appropriate for this Tribunal to refrain from passing any controversial judgment as it will amount to pre-empting the jurisdiction of honourable Lahore High Court. The honourable Lahore High Court in a judgment in Muhammad Inayatullah Cheema v. Sardar Masood Qazilbash (2002) 86 Tax 241 (H.C. Lah) observed that when an issue is pending, the lower Court should refrain from making any order till the pendency. It is pertinent to mention that in a latest judgment in (2005) 91 Tax 484 (Trib.) this learned Tribunal categorically held as under:--
"The matter has been thrashed out in detail and reference has been made to many earlier judgments from Pakistan and India. In this regard, the main judgment was of Sindh High Court i.e. (1967) 34 Tax 138. At no stage during the previous judgments or hearing of this case any order supporting the view of the department has been produced. On the other hand, our view now has been followed in dozens of judgments even if the department's view was to be projected, the set aside was not the answer. Even otherwise, the ratio decidendi of the judgment was binding and the CIT(A) should have accepted the same in its actual spirit. Our finding have further support from another judgment of the Sindh High Court reported as (1992) 65 Tax 135 (H.C.) in the case of CIT Central Zone (C) Karachi v. ADBP which has also given similar view. There is therefore, no reason to agree with DR. The remand by the CIT(A) is highly unjustified. The Assessing Officer is directed to accept the assessee claim of write off of the bad debts."
The learned AR also submitted that in the assessee-appellant's own case the honourable ITAT for the assessment years 1998-99 to 1999-2000 in I.T.As. Nos. 2715, 2716/LB of 1999, dated 28-11-2001 the issue has been decided in assessee's favour by deletion of additions on account of provision for bad debt.
The learned DR has on the other hand stated that the judgments relied upon by the AR and the CIT(A) and the Appellate Tribunal are in conflict with the judgments of the Appellate Tribunal in the case of Messrs Bank of Punjab, Lahore vide ITA, Nos.5531/LB/1996, Nos. 45, 46, 6362 and 88, 89, 6054 to 6057/LB/04, dated 28-6-2005. The Appellate Tribunal while following the judgment of Honourable Karachi High Court reported as 1986 PTD 413, held as follows:---
"In the judgments passed by the ITAT referred to by the assessee's AR (I.T.As. No. 1066 to 1073/IB/2004, dated 22-12-2004; 2002 PTD (Trib.) 1898; (2002) 85 Tax 245 (Trib.); (2003) 87 Tax 193 (Trib.); RA No.349/LB/2002) any amount declared in the provision for bad and doubtful debts account was bound to be allowed by the Assessing Officer as a P& L a/c expense as according to the author of these orders of the Tribunal such amount was declared by the assessee in accordance with prudential regulations and State Bank regulations and hence was bound to be accepted without question by the Assessing Officer.
After a careful analysis of the cited order of the KHC and the orders passed by the Tribunal we find that the cited orders of the Tribunal have misconstrued the true import of the cited KHC judgment and by declaring that the provision for bad debt amount was bound to be allowed by the Assessing Officer, in effect, without question, these judgments have divested the Assessing Officer of his authority under the statute to scrutinize the claimed bad debt amount and himself "determine" the bad debt amount that in his considered view qualifies to be written off by the assessee. After scrutiny, the Assessing Officer may enforce the assessee's bad debt claim, reduce the claim or reject the claim altogether and it is his prerogative under the law to do so as borne out by the statute i.e. section 23(1)(x) of the Ordinance which is reproduced hereunder:
"in respect of bad debts, such amount (not exceeding the amount actually written off by the assessee) as may be determined by the (Deputy Commissioner) to be irrecoverable".
The KHC in it's cited judgment has clearly upheld the Assessing Officers authority in this regard as is evident from the fact that it has held that the onus to establish that a claim bad debt had indeed gone bad was squarely on the assessee. Similar position obtained in the (since repealed) Income Tax Act, 1922 as is evident from section 10(2)(xi) of that act reproduced below:
"when the assessee's accounts in respect of any part of his business, profession or vocation are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of his business, profession or vocation and in the case of an assessee carrying on a banking or money-lending business, such sum, in respect of loans made in the ordinary course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee"
As regards assessee's AR's reference to the `provision for gratuity' and it's alleged parallel with the `provision for bad debt' we have carefully looked into this aspect and we find that the learned AR is misconceived here and there are no real similarities between a provision for gratuity and a provision for a bad debt. The Courts have now accepted that the provision for gratuity is a definite an ascertained liability even when it is cited as an accrued expense ((1985) 51 Tax 137 (KHC)) and it is possible to precisely calculate/extrapolate the gratuity amount due to an employee at the time of his superannuation/retirement given the terms of his employment agreed to between employer and employee when he first took up employment. However there is no precise methodology to determine with similar certainty what exact amount out of the total debt constitutes a `bad debt' at the time that the final accounts are drawn up. Thus the provision for bad debt is not the same are a provision for gratuity.
As for the case-law of Indian jurisdiction cited by the AR, with due respect to the Indian Court judgments, we feel that the KHC judgment referred to supra is the authoritative judgment for us and the same has primacy over all other judgments cited before us being a judgment of Pakistan jurisdiction.
As explained supra, the judgments of the Tribunal referred to by the assessee's AR are in conflict with the statute and with the KHC judgment cited as ((1976) 34 Tax 158). Resultantly, these are judgments rendered `per incurium' and hence do not constitute `binding precedent' and the `stare, decisis' rule does not apply.
The learned DR therefore vehemently submitted that since various judgments of the Appellate Tribunal referred to above are contradictory to each other and the judgment in the case of Bank of Punjab being latest as it is dated 28-6-2005 the matter should be referred conflict to a larger Bench of the Tribunal for resolution of the conflict.
The learned AR however opposed the contention of the DR for referring the matter to a larger Bench on the ground that since the honourable Lahore High Court is already seized with the matter as reference has been filed by the department, any decision by a larger Bench of the Tribunal on this issue would amount to pre-empting the jurisdiction of honourable High Court.
Submission of the learned DR that various judgments of the Appellate Tribunal on this issue are conflicting and contradictory in nature carries force. But at the same time pre-empting the jurisdiction of the High Court by judgment of a larger Bench would not be appropriate. B We would.therefore uphold the decision of the CIT(A) on this point deleting the additions made on account of provision for bad debts for all the three years i.e. 2000-2001, 2001-2002 and 2002-2003. Since the department is already in reference on this issue for earlier years, they may go in reference for these years as well.
Interest Credited to Suspense Account
The assessee has credited mark-up of Rs. 59,162,000 for 2000-2001 and of Rs.16,840,195 for 2001-2002 to the suspense account instead of the profit and loss account Assessing Officer was of the view that this amount was taxable on accrual basis rejecting the assessee's contention that it could be taxed on actual receipt basis. The AR submitted that this issue has already been decided in favour of the Banks vide following cases:
"(i) Muslim Commercial Bank v. IAC - I.T.A. No. 123 of 1999 (H.C. Kar.)
This appeal is disposed of by observing that the mark-up/interest credited to the suspense account of the appellant would not be chargeable to tax on accrual basis."
(ii) Habib Bank Ltd. v. DCIT I.T.A. No. 279 of 1999 (H.C.Kar).
"This appeal is disposed of by observing that the mark?up/interest credited to the suspense account of the appellant would not be charged to tax on accrual basis."
(iii) (2002) 85 Tax 245 (Trib.)
"We hold that interest on sticky loans transferred to sus?pense account by the banks in compliance with Prudential Regulations is not liable to tax. It is only actual recoveries but of the same which shall be liable to tax whenever received. Following the same we hold that the subordinate officers were not justified in taxing this income. The same is hereby deleted.
(iv) I.T.A. No.2715 and 2716/LB of 1999
In this case, difference of opinion arose between members of learned Tribunal. The case was, therefore, referred to third member to resolve the issue "whether interest credited to suspense account will form income of the assessee and consequently charged to tax or not". The learned third member agreeing with the judicial member allowed appeal of the appellant-bank with the following observations:--
"In my considered opinion the banks, are entitled to credit the mark-up on non-performing loans to Suspense Account which under the cash system of account is chargeable, to tax on receipt basis."
(v) I.T.A. No. 5013/LB of 1999
In this case too, difference of opinion arose between members of learned Tribunal. The case was, therefore, referred to third member to resolve the issue "whether interest credited to suspense account will form income of the assessee and consequently charged to tax or not". The learned third member agreeing with the judicial member allowed appeal of the appellant-bank with the following observation:
"In my considered opinion, the banks are entitled to credit to mark-up on non-performing loans to Suspense Account which under the cash system of account is chargeable to tax on receipt basis."
(vi) I.T.A. No.1082/LB of 2000
In this case too, difference of opinion arose between members of learned Tribunal. The case was, therefore, referred to third member to resolve the issue "whether interest credited to suspense account will form income of the assessee and consequently charged to tax or not." The learned third member agreeing with the judicial member allowed appeal of the appellant-bank with the following observation:
"In my considered opinion, the banks are entitled to credit the mark-up on non-performing loans to Suspense Account which under the cash system of account is chargeable to tax on receipt basis."
(vii) I.T.A. No. 1658/LB of 2003 (Trib.)
"Interest on Suspense Account
(6) On the said issue the learned AR once again drew the attention of the Bench to the Tribunal's order passed in I.T.As. Nos.3623 and 3624/LB of 2002 wherein the present issue has already been decided in favour of the assessee. This being the case, we are constrained to maintain the impugned order Departmental assertion stands rejected."
(vii) I.T.As. No. 966 to 968/LB/2002, 205/LB/2004, 5961 and 5962/LB of 2004.
"As already discussed the issue of interest income credited to suspense account has been decided by the ITAT holding such income not taxable. We, therefore, uphold the decision of the CIT(A)."
The CIT(A) relying on the aforesaid cases deleted the addition made under this head. The argument of the learned DR on the other hand was that since the assessee is maintaining its account on mercantile system the interest was chargeable to tax on accrual basis. Since the deletion of interest credited to suspense account was made on the basis of cases decided by the honourable Appellate Tribunal we would uphold the order of the CIT(A).
Taxation of dividend income at concessionary rate of 50%
Revenue is aggrieved on this point that the CIT(A) was not justified to direct that dividend income of a Banking company which could also be a public company should be subjected to concessionary rate of tax at 5% instead of the normal banking company rate. The AR submitted that a Banking company could also be a public company the dividend income of which is assessable at the rate of 5% under the Firstl Schedule. The AR also submitted that this issue has been decided by the E Appellate Tribunal vide .its judgment 2000 PTD (Trib.) 507, the operative part of which reads as follows:--
"We have already held that a public company also includes a banking company provided the required conditions are met. Since the assessee company although being a banking company, is also a public company the dividend income if any shall be assessable at 5% as laid down in the above mentioned para. The Assessing Officer's contention that a banking company has not been mentioned specially in para D above, and is, therefore, excluded from the rate is not acceptable for the reason that no such specific mention was required. In fact, it would only be in the case of exclusion of a banking company from this concession that a specific mention thereof would be required. Unlike para A of Part V of the First Schedule, since for purposes of taxability of dividends at concessional rates, a banking public company has not been excluded, it would follow the even banking public companies are assessable to tax at the concessional rate."
Since the banking company can also be a public company we uphold the application of tax rate of 5% to its dividend income.
Profit and loss Additions
Additions under the following head were made by the Assessing Officer out of Profit and Loss account expenses for the reason that the claim involved element of unverifiability and non-business expenditure:
"Repair and Maintenance
Stationery & Printing
Other expenses
Legal and Professional Expenses
Brokerage and Commission
Communication expenses"
The learned CIT(A) rightly deleted additions made from P&L account as these were made merely on assumptions and conjunctures. The DCIT did not point out any specific instance of non-business nature or unverifiability of any expense and also did not issue any specific notice in terms of Proviso to section 62 of the Ordinance. The account of scheduled banks are subject to audit control and strict scrutiny of the State Bank. These are regularly audited by internal, external and State Bank's auditors. Any addition made in such circumstances requires confrontation of some specific instance especially in the presence of proviso to section 62(1,) of the Income Tax Ordinance, 1979. The learned CIT(A) deleted additions in the light of following remarks of learned Tribunal in the case of Habib Bank Limited (I.T.A. No.1913/KB of 1998):-
"This is a case of a large bank, which is professionally managed with its own in-built system of checks and balances and safeguard against abuse of funds. The' reasons recorded by the' DCIT are most inappropriate. He has not pointed out any unverifiable or inadmissible item but has only made a disallowance for increase in expenses. Needless for us to point out that disallowance of this nature should be made after properly identifying the expenses which are not admissible or are of unverifiable nature, do not pertain to assessee's business. The disallowance of Rs.27,787,017 is therefore ordered to be deleted.
The CIT(A) was justified in deleting the add backs from the Profit and Loss account as no specific instance of non-business or unverifiable expense was pointed out. The banks are under the control of State Bank of Pakistan and external as well as internal auditors. Therefore, such additions without any sufficient justification cannot be sustained and are liable to be deleted. Order of the CIT(A) on this point is upheld.
Allocation of expenses relatable to exempt capital gain
Revenue also impugns the order of the CIT(A) on the ground that allocation of expenses to exempt capital, gain on sale of shares was rightly made by the Assessing Officer as income to which these expenses were allocated was not taxable being exempt. The CIT(A) deleted this addition on the basis of decided cases of the Appellate Tribunal. The AR has further submitted that based on decision in I.T.A. No. 106/LB of 2000 and I.T.A. No.1658/LB of 2003 in favour of banks, this issue has authoritatively been decided by the learned ITAT in (2004) 90 Tax 128 (Trib.) with the following observations:--
"The proration of expenses between exempt income as well as non-exempt income is not permissible because the legislature has never directed the ascertainment of the purpose of an expenditure and, therefore, the law is not concerned to find out whether the expenditure has produced or will produce taxable income. Thus, Tribunal as well as the Hon'ble Superior Courts of Pakistan in many judgments have disapproved the hypothetical formula method of probation between exempt income and taxable income."
"In such circumstances, there is no legal or factual justification to prorate expenses between exempt capital gain and income earned from other operation"
"After consideration of the factual position I am of the opinion that the finding of my learned Judicial Member is no doubt highly intelligent one, as his order enunciates, correct appraisal of facts and law."
By following this judgment this honourable Tribunal in its latest judgment. ITA No.1066 to 1073/IB/2004, dated 22-12-2004 has disapproved allocation of expenses to exempt income with the following remarks : --
"The above case law relied upon by the ITAT elaborates in detail that apportionment of expenses is not permissible between exempt capital gains and income earned from other operations."
In a recent judgment in I.T.As. Nos. 966 to 968/LB of 2002, 205/LB of 2004, 5961 and 5962/LB of 2004 the learned ITAT has also disapproved allocation of expenses to exempt income with the following words:--
"We have also considered the arguments of AR of the assessee and have also gone through the decision of ITAT in the case of Fidelity Investment Bank and other decisions of ITAT on the issue. We do not find any merit in the arguments of the learned DR for vacation of the impugned order. The first appeal authority deleted the addition under this head through well-reasoned arguments based on the earlier judgments of Tribunal. We are not inclined to interfere in the order of the CIT(A) on this issue."
Since the CIT(A) followed the judgments of the Appellatelj Tribunal on this issue, his order on this point is ,also upheld.
Fee and Subscription
The learned AR submitted that assessee incurred an amount of Rs.798086 on account of fee paid to SECP under the Securities and Exchange Commission's Regulations. The Assessing Officer disallowed this expense holding it to be of capital nature made in respect of share K capital. The AR stated that this expenditure has no connection with enhancement of share capital of the bank. Instead it was paid to the SECP in connection with business of the bank. The expense was thus not capital in nature. The CIT(A) after considering the arguments of the AR deleted this addition. His order on this point is maintained, as the arguments of the AR could not be controverted by the learned DR.
Expenses on opening of new branches
The Assessing Officer disallowed expenses on opening of new branches holding them to be capital in nature. The AR submitted that expenses were incurred on publicity of new branches opened by the bank for promotion of its business. It was further submitted that this expense was revenue in nature in view of the following reported cases:--
"(1) 137 ITR 652
"????the amount has been spent in connection with the opening of new branches was by itself no justification for disallowance, that no asset of an enduring nature had been brought into existence, and that the period of the lease by itself was not indicative of securing an asset of an enduring nature and that the expenditure could not be disallowed as of a capital nature."
(2) 168 ITR 731
"Expenditures incurred in connection with obtaining property on lease and in connection with the execution of the lease agreement is revenue expenditure and deductible as such."
In PTCL 1999 CL 33 (page 41, para. B) it was held that such expenses are even allowable in full and not as amortized expenses.
Agreeing with the arguments of the AR, CIT(A) allowed this expense incurred for business purposes. Arguments of the AR could not be controverted by the learned DR. Thus order of the CIT(A) on this issue is confirmed.
Bad debts Actually Written Off
Bad debts of Rs.278,000 were claimed as actually written of but were disallowed by the Assessing Officer on the plea that the same is not irrecoverable as the ray of hope is still there. The CIT(A) agreed with the order of the Assessing Officer and confirmed this addition.
The' AR has pleaded before us that order of the authorities below is not based on correct, appreciation of the facts as well as law. He further pleaded that the debt was actually written off because of its irrecoverability which meant not that the amount of debt is gone forever but that the chances of its recovery are extremely remote. He further pleaded that if the bad debt which is written off is recovered in subsequent period it is taxable as income under clause (aa) of section 25 of the Income Tax Ordinance. Thus it was not in the interest of the bank to claim a debt as bad which was subsequently liable to be added to its N income on recovery. It was only in cases where chances of recovery are extremely remote that the debt has been claimed to be bad and written off as irrecoverable. In this regard he placed reliance on the following judgments of the Tribunal:--
"This issue has already been decided by learned ITAT in 2002 PTD (Trib.) 1898 with the following observations:--
"The bank itself is the best judge to determine as to what part of its bad debts requires writing off. Under no stretch of imagination a businessman of an ordinary prudence specially a bank would write off a debt only to save the taxes as this way he looses more than what he appears to gain. Further the other provision of law protects it in a very rightful manner i.e. if such written off bad debts are subsequently received they can be added in income and are taxable.
As a result of above discussion we hold that the action of the ITO as well as Of the CIT is not based upon correct appreciation of the facts and law. The same, therefore, is disapproved. This obvious concludes that the bad debts claim of the assessee shall be allowed."
The above view expressed by the honourable Tribunal was subsequently upheld in a number of reported cases and in appellant's own case 85 Tax 245 (Trib.) as under:
"We have already held that it is but the Bank who can decide as to what part of its loan has become bad and under what circumstance he has to write it off. This shall obviously be in compliance to the instructions contained in Prudential Bank Regulations by the State Bank of Pakistan. The first judgment in this regard was in the case of Union Bank, which has since being followed by this Tribunal and other authorities. In fact, even in this case this Tribunal has allowed bad debts and its provision for the other years after discussing in detail that this in fact is not a provision but actually writing off as per law. The assessee case, therefore, is decided- in his favour and the department is instructed to allow this provision for bad debts by considering it as actual written off on the basis of instructions contained in earlier judgments."
The learned CIT(A) was therefore not justified in confirming disallowance of bad debt as the above judgment of the Tribunal. The honourable Tribunal in its latest judgment in 1.T.As. Nos. 1066 to 1073/LB of 2004, dated 22-12-2004 held as under:--
"The matter has been thrashed out in detail and reference has been made to many earlier judgments from Pakistan and India. In this regard, the main judgment was of Sindh High Court i.e. (1967) 34 Tax 138. At no stage during the previous judgments or hearing of this case any order supporting the view of the department has been produced. On the other hand, our view now has been followed in dozens of judgments even if the departments view was to be projected, the set aside was not the answer. Even otherwise, the ratio decidendi of the judgment was binding and the CIT(A) should have accepted the same in its actual spirit. Our finding have further support from another judgment of the Sindh High Court reported as (1992) 65 Tax 135 (H.C.) in the case of CIT Central Zone (C) Karachi v. ADBP which has also given similar view. There is therefore, no reason to agree with DR. The remand by the CIT(A) is highly unjustified. The Assessing Officer is directed to accept the assessee claim of write off of the bad debts."
Arguments of the AR carry force. He has eloquently pleaded his case relying on various judgments of the Tribunal and of the Sindh High Court. Disallowance of Rs.278,000 is therefore ordered to be deleted.
Provision for non-banking assets
An amount of Rs.13,700,000 was disallowed under the head provision for non-banking assets for the reason that it was a mere provision and none of the assets have been disposed off. The Assessing Officer found that this provision had no relevance to the actual loss. The CIT(A) confirmed this addition for the reason that no actual loss was incurred on disposal of any asset, as only the actual loss on disposal of the asset is allowable deduction. The AR has pleaded before us that non-banking assets in question relate to recoveries made against loans from debtors that constitute stocks in trade of the banks and any loss incurred is allowable under the established accounting principles. It was further pleaded that provision on non-banking assets has been made on the basis of specific guideline provided by the State Bank of Pakistan under the Prudential Regulations. It was also submitted that an approved panel of the Pakistan Banks Association assessed the market value and a difference is provided for on that basis. The AR further submitted that as per the decision of the Indian Supreme Court in Calcutta Company Ltd. v. CIT and CIT v. Kesar Sugar Ltd. The actual liability as distinguished from a contingent liability which may or may not arise in future is liable to be allowed as an admissible deduction.
In the present case the AR could not give sufficient evidence to establish before the Assessing Officer that provision for non-banking assets was not merely an unascertained provision but was actual liability Q incurred which is liable to be allowed as a deduction. Order of the CIT(A) disallowing the claim of this provision is therefore, upheld.
Excess Perquisites
Addition of Rs. 5834507 for 2000-2001, Rs. 25 lacs for 2001-2002 and Rs. 63,50,000 for 2002-2003 was made under section 24(1) of the Income Tax Ordinance, 1979 on account of excess perquisites. It was pleaded before the CIT(A) that these additions were made in violation of clause (3) of Part-IV of the Second Schedule to the Income Tax Ordinance. The said clause reads as follows:--
"(3) The provisions of clause (1) of section 24 shall not apply to any expenditure incurred by a banking company or a financial institution owned and controlled by the Federal Government on the provisions of perquisites; allowances or other benefits to any employee in pursuance of any law."
The AR was of the opinion that word `or' used in the aforesaid clause is distinctive and therefore the condition of owned and controlled was not applicable to a banking company but to the financial institution. In this regard he' relied on a case reported as (1999) 80 Tax 106 (H.C. Kar) = 1999 PTD 2901 in which it was held as follows:
"We do not see any reason for holding that word `or' appearing in Explanation (1) to section 24(1) of the Ordinance is not be used in its ordinary and natural use as disjunctive and to use it as conjunctive as to relate to the word bonus with the expression payable to any employee in accordance with the terms of his employment as remember."
The AR also pleaded that the case relied upon by the DCIT 1991 SCMR 2164 rather goes to the support of appellant's case as it is held by the honourable apex Court that the word `or' is normally disjunctive and its construction as `and is .permissible only in the exceptional-circumstances and that to if the context of the provision suggests otherwise.
After considering the text of clause (3) as reproduced above as well as the judgments of the honourable High Court and the apex Court we are of considered view that the circumstances and the context in which the word `or' is used in this clause is of conjunctive import. Thus this clause is applicable only to such banks which are owned and R controlled by the federal government. Since the assessee is not a bank which is controlled by the federal government, the benefit of this clause cannot be extended to it. Additions made by the Assessing Officer on account of excess perquisites under section 24(i) and confirmed by the R CIT(A) are upheld.
Concessional loans
Addition of Rs.15,12,000 was made in this case on account of concessional loans provided to employees under section 24(i) treating the notional benefit as perquisites in the hands of the banks. The Assessing Officer relied upon a case vide ITA No. 652/KB of 1999-2000, dated 24-4-2000 of Hong Kong and Shanghai Bank Corporation where the Appellate Tribunal held that value of any benefit provided free of cost or at concessional rate attracts the provision of section 24(i). The AR has argued that since the assessee-bank has not incurred any expenditure on provision of this facility thus the provision of section 24(i) in its case are not attracted. In this regard he relied on judgment of the Tribunal reported as (1988) 173 ITR 290 disproving addition under section 24(i) on account of concessional loans. The judgment in Hong Kong and Shanghai Bank on which the department mainly relied has also been declared per incurium in this judgment with the following observations:--
"The Assessing Officer has also referred to the case of Messrs Hongkong & Shanghai Banking Corporation decided by ITAT vide I.T.A. No.652/KB of 1999-2000. This case has been examined. In the cited case, the ITA found earlier reported judgment (1997) Tax 40 Tax 9 irrelevant as no parallel provisions have been brought to their notice in the repealed Income Tax Act of 1922 defining the expression "perquisites" as contained in section 16(2)(b) of the Income Tax Ordinance, 1979 under which the value of any benefit provided free of cost or at concessional rate is to be included in perquisites. The judgment of ITAT in case of Messrs Hongkong and Shanghai Banking Corporation is per incurrium. The provisions of section 16 pertains to the determination of salary income of a person and perquisites provided to such person will be included in the income of the person as per income tax rules. The expenditure for providing the perquisites and claimed in its accounts by an assessee under the provisions of section 23 is to be allowed subject to the limit as per section 24(i). In this case the assessee never claimed any expenditure and bank earned income by charging interest on concessionary loans/advances to its employees. Since no expenditure has been claimed, the provisions of section 24(i) are not attracted and addition made on account of concessionary loans cannot be endorsed. The addition of Rs.33,22,225 is, therefore, deleted."
After carefully scrutinizing judgment of the Appellate Tribunal in the case of Hong Kong and Changhai Bank and the later judgment of the Appellate Tribunal holding this earlier judgment as per in curium we are inclined to agree with the later judgment as the provision of section 24(i) is attracted where the expenditure is "incurred" in providing a perquisite. Provision of section 24(i) reads as follows:--
"(i) Any expenditure incurred by an assessee on the provision of perquisites, allowances or other benefits to any employee, in S excess of fifty per cent of his salary excluding perquisites allowances or other benefits."
"(i) In the present case since no expenditure was incurred by the bank on provision of concessional loans, this would not be a perquisite falling under the provision of section 24(i).
A perquisite for purpose of taxation has two aspects. One aspect is its taxability in the hands of the employer which is covered under section 24(i) and the other aspect is the taxability of perquisites in the hands of the employee which are computed in accordance with rules 4 to 18 of the Income Tax Rules 1982. Rule 3 in this regard reads as follows:--
"(3) Valuation of perquisites, allowances benefits.---(1) For the purposes of computing the income chargeable under the head T "salary", the value of perquisites, allowances and benefits to be included in the said income shall be determined in accordance with the provisions of rules 4 to 18."
So if an employee has been provided a benefit perquisite on concessional rate, it will be a perquisite in the hands of the employee under Rule 18 of the Income Tax Rules and the amount which would have been expended by the employee in obtaining such benefit or perquisite from an independent source as reduced by the amount if any actually paid by him in cash would be added to his income. Since in the present case the bank did not incur any expenditure in the provision of concessional loan we would concur with the later judgment of the Tribunal and the additions made by the Assessing Officer on concessional loans are ordered to be deleted.
We must however mention that benefit of concessional loan is liable to be added to the salary income of the employee under Rule 18 read with Rule 3 of the Rules.
Provision for diminution in value of investment
The assessee made a provision of Rs.24,20,000 for diminution in value of investment and Assessing Officer disallowed it by stating that it is merely a provision. The CIT(A) upheld-this disallowance stating that the arguments put forth by the AR before the Assessing Officer have been duly considered by him and his order on this point suffers from no legal infirmity. The addition was accordingly upheld.
The AR has submitted that provision was made as per Prudential Regulations of State Bank of Pakistan which were made under the State Bank of Pakistan Act, 1956. The AR further submitted that in view of section 46B and 54A of the State Bank of Pakistan Act, 1956 and section 91'A of Banking Companies Ordinance 1962 read with section 35 of the said Act, the provisions of Income Tax Ordinance, 1979 are over-ridden to the extent of provisions made in the Prudential Regulations. In this regard he quoted the aforesaid sections as follows:--
"Section 46-B of State Bank of Pakistan Act, 1956
46-B - Inconsistent directives not be issued.---No government or quasi-governmental body or agency shall issue any directive, directly or indirectly, to any banking company or any other financial institution regulated by the Bank which is inconsistent with the policies, regulations and directives issued by the Bank pursuant to this Act, the Banking Companies Ordinance, 1962 (LVII of 1962) or any other law in force.
Section 54-A of State Bank of Pakistan Act, 1956
54-A. Provisions to override other laws. This Act shall have effect notwithstanding anything contained in any other law for the time being in force or any agreement, contract, memorandum or articles of association.
Section 91A of Banking Companies Ordinance, 1962
91-A. Application of other laws barred. The provisions of clauses (dd) (ee) and (gg) of section 5, section 13, 15-A, 15-B, 15-C, 21, 24, 25, 25-A, 25-B, 26-A, 27-A, 35, 41, 41-A, 41-B, 41-C, 42, 43-A, 43-AA, 43-B, 43-C, 43-D, 43-E, 43-F and 84 shall have effect notwithstanding anything contained in any other provision of this Ordinance except section 91, or in any other law for the time being in force or in any contract, agreement award, memorandum or articles of association or other instruments.
Section 35 of the Banking Companies Ordinance, 1962
35. Audit. (1) The balance-sheet and profit and loss account prepared in accordance with section 34 shall be audited by a person who is duly qualified, under the Chartered Accountants Ordinance, 1961 (X of 1961), or any other law for the time being in force, to be an auditor of companies and is borne on the panel of auditors maintained by the State Bank for the purposes of audit of banking companies.
(2) ????????
(3) The State Bank may, from time to time lay down guidelines for the audit of banking companies and the auditors shall be bound to follow these guidelines."
It is to be noted that State Bank of Pakistan Act, 1956 and the Banking Companies Ordinance, 1962 are enactments prior to the Income Tax Ordinance, 1979. Thus provisions of these enactments would not override a law made subsequently. The arguments of the AR that the provisions of Income Tax Ordinance are excluded to the extent of provisions made in the State Bank regulations made under the State Bank Act is not tenable.
Authorities under the Income Tax Ordinance, 1979 as laid down in section 5, exercise their jurisdiction subject to the provisions Ordinance. Thus if effect of any other law is to be given notwithstanding the provision of Income Tax Ordinance then a specific provision is made in the Income Tax Ordinance giving effect to such provision of that other law. Prudential Regulations of the State Bank of Pakistan or the Companies Ordinance, 1962 would therefore net override the provision of Income Tax Ordinance, 1979 as no specific effect has been given to their provisions in the Income Tax Ordinance.
The aspect has also been clearly laid down in section 3 of the Income Tax Ordinance, 2001 which reads as follows:--
Ordinance to override other laws.---The provisions of Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time being in force."
In view of this position the orders of the authorities below that this was merely unascertained provision and hence inadmissible is upheld.
Renovation Written Off
The assessee had written of renovation amounting to Rs.4175229 as it shifted its head office to another place. The Assessing Officer disallowed an amount of Rs.10 lacs stating that the assessee did not provide details of assets written off. On the other hand the AR submitted that the amount related to times which are fixed in nature and could not be removed from their present position so the bank had to surrender them. The CIT(A) found that no solid evidence in this regard was produced. Assessee's reply was also not found satisfactory, he accordingly upheld the addition of Rs.10 lacs being reasonable. The AR has not submitted any further argument except what was said earlier before the CIT(A), we decline to interfere with his order. Addition on this point is upheld.
Commercialization Fee Paid to LDA
The assessee paid an amount of Rs.15,000 as penalty paid to LDA which was disallowed by the Assessing Officer being inadmissible under section 24(i). It was submitted before the CIT(A) that this was not a penalty but commercialization fee paid So LDA which was admissible. The CIT(A) found that no evidence in support of this contention was produced therefore, he upheld the order of the learned Assessing Officer. We find no reason to differ with the order of the CIT(A) which is maintained.
All the appeals are disposed off as above.
C.M.A./553/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Order accordingly.