I.T.As. Nos.5660/LB of 2003 and 2130/LB of 2005, decided on 5th January, 2006. VS I.T.As. Nos.5660/LB of 2003 and 2130/LB of 2005, decided on 5th January, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1481 (2006)

(a) Income-tax---

----Add back---Capital expenditure---Purchase of a telephone set was an expenditure of capital nature; assessee at best could be entitled to its depreciation and not the total amount. 1993 PTD (Trib.) 1222 ref.

(b) Income-tax---

----Add back---Telephone expenditure---Appellate Tribunal' allowed 75% of the claimed expenditure as the same was being used by the assessee as well as his family.

(c) Income-tax---

----Add back---Depreciation of car---If assessee during visits from residence to courts dropped or picked up his children from school/colleges or some time in the evening the same comes in personal use---Entitlement of depreciation should not have been reduced to 50%---Appellate Tribunal directed that claim should be allowed to 75% while rest shall be added by the Assessing Officer for calculating income.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 12(18)---Income deemed to accrue or arise in Pakistan---Family cash pool---Purchase of car out of cash received from the sons under the head family cash pool---Addition---Validity---Assessee neither claimed the same as gift nor it was one time transfer; it was a contribution in the family expenses by members of the same family against facilities they were enjoying under the supervisions and blessings of the head of the family---Arrangement in hand i.e. family pool and contribution therein in joint family system was neither a gift nor donation, advance or loan---Provision of S.12(18) of the Income Tax Ordinance, 1979 was inserted to curb the misuse of the back dated cash loans or gifts; it was not a tool for charging tax in substitution of the main charging provisions but was in the form of check and not `charge' which should only be used where the tax collector was satisfied that the provision was applicable on all fours---Addition made by the Assessing Officer was deleted by the Appellate Tribunal. 1995 PTD (Trib.) 1176 ref.

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

----S. 12(18)---Income deemed to accrue or arise in Pakistan---Unless the assessee itself claims some amount to be either a loan, a gift or an advance the Assessing Officer could not further proceed to invoke the provisions of S.12(18) of the Income Tax Ordinance, 1979. 1995 PTD (Trib.) 1176 rel.

(f) Income Tax Ordinance (XXXI of 1979)----.

---S.? 12(18)---Income deemed to accrue or arise in Pakistan---Application---Section 12(18) Income Tax Ordinance, 1979 is a deemed income provision which can only be applied in the situations which are beyond any doubt.

(g) Word and phrases---

----Gift---`Gift' in tax laws is a payment made without conditions, for detached and disinterested generosity, out of affection, respect, charity or like impulses and not from the restraining force or a legal duty or from the incentive of anticipated benefits of an economic nature.

?Sh. Zia Ullah for Appellant (in I.T.A. No.5660/LB of 2003).

Mehboob Alam, D.R. for Respondent (in I.T.A. No.5660/LB of 2003).

Mehboob Alam, D.R. for Appellant (in I.T.A. No.2130 of 2005).

?Sh. Zia Ullah for Respondent (in I.T.A. No.2130 of 2005).

Date of hearing: 16th December, 2005.

ORDER

KHAWAJA FAROOQ SAEED, (CHAIRPERSON).---This cross appeal has been filed by the assessee and the department. Appeals are against the order of the C.I.T.(A) No.10012, dated 6-8-2003.

The assessee is an advocate and has challenged the add backs in P&L account. His first grievance is in respect of add backs of telephone amounting to Rs.2594, Rs.32,290 and Rs.9,000 against the claim of Rs.17,293, Rs.42,290 and Rs.10,000 respectively. The assessee claims that except for the first amount all other add backs are unjustified. He argued that entire expenses have been incurred against his legal and professional activities. He added that the claim of Rs.10,000 was against replacement and repair of a telephone.

?The assessee has further challenged. add back in books and periodicals, general entertainment expenses, repair and maintenance of motor and depreciation. It is his claim that the entire expenses are verifiable and vouched. Regarding add back in depreciating he said that the car having never been used for other than professional activities, depreciation should have been allowed in full.

?With full respect for the arguments and also of the case law referred by the assessee in terms of 1993 PTD (Trib.) 1222, the claim of the assessee in respect of telephone cannot be allowed in full. Moreover, purchase of a telephone set is an expenditure of capital nature hence the assessee at best can be entitled to its depreciation and not the total amount.

?Regarding additions of Rs.32,290 in telephone claim, I agree with petitioner that the same appears to be quite excessive. However, since the same is being used by the assessee as well as his family also, I find it appropriate to allow 75% of the claim of Rs.42,290.

Regarding additions of Rs.2,594 and Rs.9,000 in the said head I confirm the first figure and reduce the second figure to Rs.7,000 giving the margin of repair and depreciation.

?Coming to the figure of books and periodicals, general entertainment, repair and maintenance the claim of the assessee is quite modest. Additions made therein were .quite unnecessary. Specially when the assessee is maintaining proper accounts and his receipts have been accepted. This amount is therefore, deleted.

?Regarding issue of depreciation of car, if the assessee during visits from residence to courts drop or pick up his children from school/colleges or some time in the evening the same comes in personal use as well the entitlement of depreciation should not have been reduced to 50%. Here again I consider that the claim should be allowed to 75% of Rs.1,20,000, while rest shall be added by the Assessing Officer for calculating income.

This leaves us to the issue with regard to the addition under section 12(18). The ITO while making this addition has observed as follows:-

During the year under consideration the assessee made investment of Rs.67,500 for the purchase of Toyota Corolla Car No. LXB-161 on 23-8-1999. When required to explain the sources' of. investment, the assessee furnished cash flow. statement, scrutiny of which revealed that an amount of Rs.222,333 is claimed to have been received as cash from his two sons Mr. Munib Zia (Rs.166333) and Mr. Haseeb Zia at Rs.60,000 under the head family cash pool. The assessee claims living in joint family system and house hold expenses were shown at Rs.500,000 out of which Rs.200,000 were contributed by Mr. Munib Zia and Rs.50,000 by other son Mr. Haseeb Zia. Family cash pool was, therefore, not meant for investment for purchase of car. The assessee has obviously used the term of family cash pool just to side track the department and to avoid the provision of section 12(18). The receipts of cash admitted by the assessee for the purchase of car is treated as gift from sons (as no loan has either been claimed by the assessee or his sons) and at the amount of Rs.222,333 is added to the assessee's income under section 12(18) as cash gift.

Above observation of the Assessing Officer has already been considered as not enough for addition under section 12(18) by the higher courts. In this regard one can safely refer 1995 PTD (Trib.) 1176. This tribunal as well as superior courts have in many judgments held that unless the assessee itself claims some amount to be either a loan, a gift' or an advance the Assessing Officer cannot further proceed to invoke the provisions of section 12(18). The ratio of the above judgment also applies in full on the facts and circumstances of this case. The Assessing Officer has tried to cover household expenses contribution into the definition of gift. The assessee neither claims the same as gift nor it is an one time transfer. It is a contribution in the family expenses by members of the same family against facilities they are enjoying under the supervisions and blessings of the head of the family. The extension of the power in a manner like this means showing the muscles of the revenue collector which obviously have never been supported by the higher courts. This is a deemed income provision which can only be applied in the situations which are beyond any doubt. Smallest or in other words even an iota of doubt would go to favour the taxpayer. In this case, children after having attained a stage under the guidance and blessings of the parents have started contributing to their family pool. In this joint family system they are living in father's house where they are being provided food, shelter and other amenities of life. This amount at best can be called as re-imbursement of the expenses incurred by the parents in past and present or a contribution to reduce the burden of the head of the family which in our society in majority of the cases is the father, like in this case. A `gift' in tax laws is a payment made without conditions, for detached and disinterested generosity, out of affection, respect, charity or like impulses, and not from the restraining force, or a legal duty or from the incentive of anticipated benefits of an economic nature.

?Above definition makes it clear that the arrangement in hand i.e. family pool and contribution therein in joint family system is neither a gift nor donation, advance or loan. The provision of S.12(18) was inserted to curb the misuse of the back dated cash loans or gifts etc. It is not a tool for charging tax in substitution of the main charging provisions. This is in the form of check and not `charge'. It should only be used where the tax collector is satisfied that the provision is applicable on all fours.

?I, therefore, without any further discussion or hesitations delete this addition made by the Assessing Officer and decide the case accordingly.

C.M.A./31/Tax (Trib.)????????????????????????????????????????????????????????????? Order accordingly.