I.T.As. Nos.5531/LB of 1996, 45/LB, 46/LB, 6362/LB, 88/LB, 89/LB, 6054/LB to 6057/LB of 2004, decided on 28th June, 2005. VS I.T.As. Nos.5531/LB of 1996, 45/LB, 46/LB, 6362/LB, 88/LB, 89/LB, 6054/LB to 6057/LB of 2004, decided on 28th June, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1800 (2005)

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

----S.23(1)(x)---Deductions---Disallowance of provisions for bad debts on the ground that `provision' made in final accounts for an expense did not qualify as valid business expendiure and it was required to be added back to income when finalizing income tax assessment and in case of debt gone bad, only that part of the debt may be written off and charged to the profit and loss account that could be shown by the assessee to have actually gone bad---Assessee-Bank contended that Banking Company fell in a distinct class governed by `prudential regulations' and subject to stringent rules prescribed by State Bank of Pakistan reporting format for documentation required to be periodically filed by a Bank before the State Bank, made it incumbent on the assessee-Bank to cite only `a provision for bad and doubtful debts in the case of debt that was held by the Bank to have `gone bad'---Assessee had no option but to cite the bad debt as a provision in the final accounts---Validity---Assessing Officer had not "determined" whether or not the claimed bad debt had indeed become bad as was required to do under S.23(1)(x) of the Income Tax Ordinance, 1979---Matter was remanded to Assessing Officer to do the same strictly in accordance with law---Assessing Officer will not disallow the bad debt claim simply because it had been cited as a `provision for bad debt'---Add-back could only be made if, after calling for necessary explanation/clarification as the Assessing Officer might require, the assessee was duly confronted and the Assessing Officer then `determines' that a certain amount was not a `bad debt'---If Assessing Officer were to allow the provision for bad debts as a profit and loss account expense without question, as a matter of course, then the statutory requirement for its "determining" whether the debt had indeed become bad would be rendered redundant which of course could not be the case as no provision in a statute could be seen as having become redundant---Matter pertaining to bad debt as a charge to the profit and loss account was remanded to the Assessing Officer for its re-appraisal strictly in accordance with express statutory stipulation/judgment of High Court.

1976 PTD 237 and M.A. 22-23/LB/2005 (A.Y. 1997-98 & 1998-99), dated 24-5-2004 ref.

(b) Interpretation of statutes---

----Fiscal law will be taken to mean what a plan reading of the text of the statute ordinarily suggests---Nothing can be read into or out of a statute and no special interpretation at variance with what it's text plainly suggests is permissible.

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

----S. 23(1)(x)---Deductions---After scrutiny, the Assessing Officer may endorse 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. S.23(1)(x) of the Income Tax Ordinance, 1979.

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

----S.23(1)(x)---Deductions---Burden of proof---Onus to establish that a claimed bad debt had indeed gone bad was squarely on the assessee.

1976 PTD 237 rel.

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

----S.23(1)(x)---Deductions---"Provisions for bad debts" and "provisions for gratuity"---No similarities---No real similarities between a provision for gratuity and a provision for a had debt---Provision for gratuity is a definite and ascertained liability even when it is cited as an accrued expense and it is possible to precisely calculate/extrapolate the gratuity amount due to an employee at the time of his superannuation/retirement given by the terms of his employment agreed to between employer and employee when he first took up employment---No precise methodology to determine with similar certainly what exact amount out of the total debt constitutes a `bad debt' at the time when the final accounts are drawn up---Provision for bad debt is not the same as a provision of gratuity.

1985 PTD 413 rel.

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

---S. 23(1)(x)--Deductions--Bad debts taxed in earlier years---Department contended that First Appellate Authority was not justified to delete the addition made on account of bad debts taxed in earlier years in contravention of provisions of S. 23(1)(x) of the Income Tax Ordinance, 1979---Assessee contended that in cases of banks, the Assessing Officer could not insist for concrete evidence that the debt had indeed become irrecoverable and mere debit to the Profit and Loss Account of debts by banks was, prima facie, evidence that the same were allowable expenditure---Validity---Bad debt claim once rejected by the Assessing Officer could be considered again in a subsequent year and there was no bar in law regarding the same---Assessing Officer will be required to "determine" whether the bad debt claim was justified or not whenever the debt claim came up before him---Such was not a question of requiring the assessee-bank to submit "unassailable proof"' in this regard but rather the assessee-bank will have to answer any query raised by the Assessing Officer in case he had any doubt that a debt qualified to be treated as having become bad---Matter pertaining to had debt taxed in earlier years also required the Assessing Officer's scrutiny and finding as to admissibility---Matter pertaining to such bad debts was remanded back to Assessing Officer for his appraisal strictly in accordance with law.

1976 PTD 237 and M.A. 22-23/LB of 2005 (A.Y. 1997=98 & 1998-99), dated 24-5-2004 ref.

I.T.A. No. 1066 to 1073/IB of 2004; 2002 PTD (Trib.) 1898; (2002) 85 Tax 245 (Trib.); 2003 PTD (Trib.) 1189 and R.A. No.349/LB of 2002 per incurium.

1999 PTD 1972; (1997) 226 ITR 605 (Guj); (1983) 16 TTJ (all.) 65; (1985) 21 TTJ (All.) 233; (1998) 100 Taxman 109 (Cal.); (1960) 39 ITR 104; (1983) 143 ITR 166 (Guj.); (1989) 30 ITD 245(Delhi); (1990) 32 ITD 315 (Born); (1999) 65 TTJ (Jp). 480; (1987) 27 TTJ (Delhi) 50; (1985) 21 TTJ (Indore) 251 and (1988) 24 ITD 97 (Ahd) not considered.

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

----S. 23---Deductions---Taxation of profit on NIT units as dividends---Relief accorded by the First Appellate Authority that "profit on NIT units should be treated as dividend chargeable to tax at concessionary rate of 5% instead of normal rate as dividend chargeable to tax at concessionary rate of 5% instead of normal rate applied on it being a composite income of banking business" was maintained by the Appellate Tribunal as it was consistent with statutory stipulation and applicable law.

2002 PTD (Tub.) 507 rel.

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

----S. 23(1)(xviii)---Deductions---Appellate Tribunal upheld the finding of First Appellate Authority allowing Corporate Assets Tax payment as a legitimate charge to the assessee-company's Profit and Loss Account.

1980 PTD (Trib.) 61 and 1981 PTD 84 rel.

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

----Third Sched., R.8(4)---Depreciation allowance---Initial depreciation--Office equipment---Appellate Tribunal maintained the normal depreciation allowed on "office equipment" by the First Appellate Authority on the ground that office equipment did constitute machinery.

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

---S. 23---Zakat and Ushr Ordinance (XVI11 of 1980), S. 25---C.B.R. Circular No.28 of 1980, dated 29-10-1980---Deductions---Zakat on Nl7' units---Addition made on the ground that assessee never actually paid any amount by way of Zakat to the Central Zakat Fund was deleted by the First Appellate Authority, which was maintained by the Appellate Tribunal as Zakat was deducted by the company on dividend income.

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

----S. 23---Deductions---Taxation of dividend at concessionary rate---First Appellate Authority's direction to tax dividend income at the rate of 5% instead of normal tax rates applicable to banking companies was maintained by the Appellate Tribunal.

2002 PTD (Trib.) 507 and I.T.As. Nos. 93-94/LB of 2001 rel.

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

----S. 23---Deductions---Interest credited to suspense account---First Appellate Authority deleted the addition made on account of interest credited to suspense account and the same was upheld by the Appellate Tribunal.

(2002) 85 Tax 245 (Trib.); I.T.A. No. 3458_2920 to 2922/LB of 2001; I.T.As. Nos.2715-2716/LB of 1999; I.T.A. No.1658/LB of 2003 and I.T.As. Nos. 3623-3624/LB of 2002 rel.

(m) Income-tax---

----Expenses---Apportionment of expenses between exempt capital gain and income earned from other operations was not permissible: in law.

I.T.A. No. 1066 to 1073/1B of 2004 and 2004 PTD (Trib.) 344 rel.

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

----S. 23---Deductions---Share enlistment fee---Addition on account of "share enlistment fee" was made on the ground that such expense was capital in nature---Assessee contended that fee paid to Stock Exchange under the Securities and Exchange Commission Regulation was an expense wholly and exclusively for the business of the bank and not a capital in nature---Addition was deleted by the First Appellate Authority---Relief accorded by the First Appellate Authority was maintained by the Appellate Tribunal.

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

----S. 23(1)(xxi)---Deductions---Expenditure---Assessee contended that First Appellate Authority unjustifiably maintained addition made by the Assessing Officer as there was no express statutory stipulation that expenditure claimed under S.23 (1)(xxi) of the Income Tax Ordinance, 1979 be admitted only if such expenditure was first incorporated in income---Mark-up/interest credit to the suspense account related to non-performing loans and had been specifically declared as allowable deduction by the legislature---Validity---Departmental rationale for disallowance of such expenditure under S.23(1)(xxi) of the Income Tax Ordinance, 1979 appeared to be misconceived---Appellate Tribunal directed that the expenditure be admitted in full.

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

----S. 23---Deductions---Amortization of deferred cost---Assessee contended that First Appellate Authority had unjustifiably confirmed the addition made by the Assessing Officer on the ground that the expenditure in, question incurred on new branches of assessee-Bank renovated etc. was capital in nature when in actual fact the expenditure was in essence revenue expenditure and had been deferred by the assessee over a three years period in order to spread out of the expenditure over a reasonable timeframe and no asset of enduring nature had been credited---Validity---Held, expenditure was indeed not in the nature of capital expenditure and could legitimately be seen as revenue expenditure and the same was allowable in full as claimed.

I.T.A. No. 93-94/LB of 2001; 137 ITR 652; 168 ITR 731 and 1998 PTD (Trib.) 1935 rel.

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

---S. 23---Deductions---Disallowance of depreciation on vehicles and building---Assessing Officer tinkered with the depreciation claim which was not proper---Disallowance made by the Assessing Officer and approved by the First Appellate Authority was deleted by the Appellate Tribunal.

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

---S. 23---Deductions---Taxation of compensation on delayed refund---Assessee received compensation on account of delayed disbursement of refund---Such compensation was not declared as "income" as it was in the nature of damages from wrongful possession of assessee's property---Assessee contended that any damages/compensation/interest etc. received for sterilizing of profit for loss to property or injury to capital asset were capital receipts not chargeable to tax---First Appellate Authority upheld the addition of compensation amount to income with the observation that the assessee could not sufficiently rebut the findings of the Assessing Officer---Validity---When compensation admittedly pertained to refund due to assessee and not disbursed in time, such compensation was without doubt capital in nature and not taxable under the Income Tax Ordinance, 1979---Finding First Appellate Authority was vacated and it, was directed that the addition as made by the Assessing Officer be deleted.

(1993) 199 ITR 303 (Ker); (1970) 76 1TR 467 (SC); (1979) 3 SC 150 and (1989) 179 ITR 157 rel.

Dr. Amjad, Addl. CIT. and Shahid Jamil, L.A. for Appellant (in I.T.As. Nos, 5531/LB of 1996, 45/LB, 46/LB and 6362/LB of 2004).

Dr. Ikram-ul-Haq for Respondent (in ITT.As. Nos. 5531/LB of 1996, 45/LB, 46/LB, 6362/LB of 2004).

Dr. Ikram-ul-Haq for Appellant (in LT.As. Nos.88/LB, 89/LB, 6054/LB to 6057/LB of 2004).

Dr. Amjad, Addl. C.I.T. and Shahid Jamil, L.A. for Respondent (in I.T.As. Nos.88/LB, 89/LB, 6054/LB to 6057/LB of 2004).

Date of hearing: 12th March, 2005.

ORDER

A plethora of issues are involved in these appeals and these may be summarized as follows:--

Departmental Appeals

1. Provision for bad debts2000-2001

2001-2002

2002-2003

2. Bad debts taxed in earlier years2001-2002

3. Zakat on NIT Unit1993-94

4. Corporate Asset Tax1993-94

5. Initial depreciation on office equipment1993-94

6. Taxation of dividend at concessionary rate2000-2001

2001-2002

7. Interest credited to suspense account2001-2002

2002-2003

8. Allocation of expenses to exempt capital gain2001-2002

2002-2003

9. Share enlistment fee2002-2003

10. Taxation of profit on NIT units as dividend2000-2001

2002-2003

Assessee's Appeals

1. Expenditure under section 23(1)(xxi)2000-2001

2001-2002

2. Amortization of deferred cost1998-99 to 2002-2003

3. Excess perquisites2000-2001 to 2002-2003

4. Concessional loans2001-2002

2002-2003

5. Loss from investment in securities2000-2001

6. Depreciation on vehicles2000-2001

7. Initial depreciation office equipment2000-2001

8. Inadvertent short deduction on commission2001-2002

9. Taxation of compensation on delayed refund2001-2002

Provision for bad debts (A.Ys 2000-2001 2001-2002 & 2002-2003)

2. The allowance of the provision for bad and doubtful debts as a legitimate profit and loss deduction in terms of the stipulation laid down in section 23(1)(x) of the (repealed) Income Tax Ordinance of 1979 (hereinafter called the Ordinance) is an issue of major significance in these appeals.

3. It is departmental contention that any `provision' made in the final accounts for an expense by an assessee does not qualify as valid business expenditure and is therefore required to be added-back to income when finalizing income tax assessment and in the case of debt gone bad, only that part of the debt may be written off and charged to the profit and loss account that can be shown by the assessee to have actually gone bad. There is thus in the departmental view a qualitative difference between a `provision' for debt whose recovery is doubtful and debt that is found to have actually gone bad and is therefore required to be 'written off' the assessee's books by charging the same to the profit and loss actount and `expenditure' and crediting the (bad) debtors account.

4.In support of it's contention on the matter, the department basically relies on the statute and the way clause (x) of subsection (1) of section 23 of the Ordinance is drafted and it is asserted by Revenue that express statutory stipulation makes it abundantly clear that the Assessing Officer must `determine' whether the debt that is claimed by an assessee to have gone bad and therefore written off the accounts has indeed gone bad in whole or in part. It is the departmental assertion that a `provision' is nothing but a `provision' and represents amount prudently set apart to deal with a `possible' eventuality i.e. some part of debt (eventually) going bad and it does not at all necessarily lead to the inescapable conclusion that the entire provision amount has actually gone bad.

5. The assessee's viewpoint is the precise opposite and the learned counsel for the assessee-Bank emphasizes before us that a Banking Company falls in a distinct class governed by, so called, `prudential regulations' and subject to stringent State Bank of Pakistan oversight and very importantly, the AR submits that the prescribed State Bank of Pakistan reporting format for documentation required to be periodically filed by a Bank before the State Bank makes it incumbent on the assessee Bank to cite only 'a. provision for bad and doubtful debts' in the case of debt that is held by the Bank to have `gone bad' and thus, according to the learned A.R., the assessee-Bank as no option but to cite the Bad Debt as a provision in, the final accounts. As the assessee's counsel succinctly put it before the Tribunal, the question is only one of "nomenclature" (i.e. `provision' as against `bad debt written off') and it is of no substantive significance that the Bank cites it one way or the other. In support of his views, the learned AR for the assessee-Bank confidently refers to a judgment of the superior Judiciary (Pakistan) and various Judgments. Reported as, well as otherwise of the Income Tax Appellate Tribunal, viz:---

" PTD 237; ITA No.1066 to 1073/IB104, dated 22-12-2004; 2002 PTD (Trib.) 1898; (2002) 85 Tax 245 (Trib.); 2003 PTD (Trib.) 1 189 and R.A. No. 349/LB of 2002.

6. Thus, according to assessee's AR, a provision for bad and doubtful debts is the same as bad debts actually written off and is required to be treated as such by the Assessing Officer at the time of income tax assessment of the bank. In this context the leaned AR further argued that the provision for bad debt is the same as a provision for gratuity and it is emphasized that the provision for gratuity is accepted by the department as a valid charge to the P&L a/c and there is no objection that having been cited as a 'provision' it was to he added back. In the AR's view `provision for bad and doubtful debt' should similarly be admitted. Finally, the AR has referred to case-law of Indian jurisdiction 1999 PTD 1972; (1997) 226 ITR 605 (Guj); (1983) 16 TTJ (all.) 65; (1985) 21 TTJ (All.) 233; (1998) 100 Taxmann 109 (Cal.); (1960) 39 ITR 104; (1983) 143 ITR 166 (Guj.); (1989) 30 ITD 245(Delhi); (1990) 32 ITD-315 (Born); (1999) 65 TTJ (Jp). 480; (1987) 27 TTJ (Delhi) 50; (1985) 21 TTJ (Indore) 251; (1988) 24 ITD 97 (Ahd). And perusal of such case-law according to the AR leads to the inescapable conclusion that:-- .

"mere debit to profit and loss account of debts by banks is `prima facie' evidence that the same are allowable expenditure."

7. We have heard both sides, perused the cited case-law and examined the available record and our findings are recorded as under:---

(a)Provision for bad and doubtful debts:

(i) For purpose of income tax assessment of an entity not falling within the purview of a double tax avoidance treaty, it is the Income Tax Ordinance that has primary significance. Express statutory stipulation as laid down in the Ordinance must prevail and no other law can claim countervailing authority. Only in the case of double tax avoidance treaties negotiated between sovereign States will treaty terms prevail over the Ordinance. That is the only exception.

(ii) Without a doubt, prudential regulations certainly do govern the functioning and operations of banking companies but when it comes to income tax assessment of the banking company, these regulations can in no way override the enacted law as laid down in the Income Tax Ordinance. Clause (x) subsection (1) of section 23 of the Ord. lays down the law with regard to write off of bad debts and 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"

(iii) A cardinal principle with regard to the interpretation of fiscal. law is that it will be taken to mean what a plain reading of the text of the statute ordinarily suggest. Nothing can be read into or out of a statute and no special interpretation at variance with what it's text plainly suggests is permissible.

(iv) Courts have a significant role in the interpretation of statutes and their judgments are often referred to in this context. In the matter pertaining to bad debts and their write oft' the Karachi High Court judgment cited as ((1976) 34 Tax 158) is an obvious starting point as it is the most authoritative superior judiciary (Pakistan) judgment in the field on this subject.

(v) The cited KHC judgment disposes off a departmental Reference Application against judgment of the Income Tax Appellate Tribunal in which the applicant-Bank maintained a system of accounts that statedly permitted it to write off the debt that it judged to have gone bad and at the same time permitted the assessee-Bank to incorporate in it's accounts any recoveries made of any debt that it had earlier "written off" on the ground that the debt had gone bad and declare the same as it's income.

The income tax officer had refused to allow the bad debt claim .as a P&L a/c deduction for the reason that the assessee's accounts permitted the assessee to incorporate any recovered `bad debt' as it's income and thus according to the income tax officer this showed that the debt claimed by the assessee to have gone bad had not actually gone irretrievably bad and had only `provisionally" been classified as a bad debt and such classification was not final and such debt could not therefore be legitimately categorized as a 'bad debt.' Obviously in that case the department was only prepared to accept that debt as a bad debt that in it's view was a total Joss to the assessee and there was no possibility of it's recovery in the future.

(vi) The KHC rejected the departmental viewpoint and held that a debt may legitimately be categorized as having gone bad and be written off by an assessee by opening a provision for bad and doubtful debt account, debiting the P&L ale with the provision for bad debt amount and crediting the provision for bad and doubtful debt account and it made no difference if such debt was recovered later on and re-incorporated in the assessee's accounts by reversing the accounting entries and declaring the (recovered) debt as the assessee's income.

(vii) The KHC further held in it's cited judgment that the onus to prove that a debt had indeed. gone bad lay squarely on the assessee.

(viii) In the judgments passed by the ITAT referred to by the assessee's AR (I.T.A. No.1066 to 1073/lB of 2004, dated 22-12-2004; 2002 PTD (Trib). 1898; (2002) 85 Tax 245 (Trib.); 2003 PTD (Trib.) 1189; R.A. No.349/LB of 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 ale 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.

(ix) 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

(x) the claimed bad debt amount and himself "determine" the debt amount that in his considered view qualifies to be written off by the assessee. After scrutiny, the Assessing Officer may endorse 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"

(x) 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 claimed bad debt had indeed gone bad was squarely on the assessee.

(xi) 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"

(xii) 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 and 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 as a provision for gratuity.

(xiii) 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.

(xiv) 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.

(xv) In M.A. 22-23/LB of 2005 (A. Ys. 1997-98 and 1998-99), dated 24-5-2004 various pertinent aspects of judgments rendered "per incurium" have been discussed in detail and the following extract from that judgment is reproduced below as it is applicable in this case also:--

"incuria" literally means `carelessness'. In practice per incuriam appears to mean per ignoratium. English Courts have developed this principle in relaxation of the rule of stare decisis. The `quotable in law' is avoided and ignored if it is rendered, in ignoratium of a statute or other binding authority'. (Young v. Bristol Aeroplane Co. Ltd.) (1944) 1 KB 718; (1944) 2 All ER 293. Same has been accepted, approved and adopted by the Supreme Court of India while interpreting Article 141 of the Indian Constitution which embodies the doctrine of precedents as a matter of law.

In (1991) 4-S.C.C. 139 (SC IND) it was held that doctrine of per incuriam operates as an exception to the rule of precedents and where and judgment is passed in ignoratium i.e. in ignorance of a provision of law or binding authority then it is not binding and quotable in law.

[State of U.P. and another v. Synthetics and Chemicals Ltd. and another 1991 (4) SCC 139 (India)]

In our opinion, incorrect appreciation of the Karachi High Court judgment cited as 1976 PTD 237 is the root-cause of Tribunal's flawed judgments in ITA No's. 1066 to 1073/IB/2004, dated 22-12-2004;'2002 PTD (Trib.) 1898; (2002) 85 Tax 245 ('rib.); 2003 PTD (Trib.) 1189; RA No.349/LB/2002. It appears that the Bench was not properly assisted as regards the true import of the Karachi High Court judgment referred to supra and a lot of emphasis was instead needlessly placed on judgments of Indian jurisdiction.

(xvi) As in the case of the present assessee the Assessing Officer has not "determined" whether or not the claimed bad debt had indeed become bad as he was required to do under section 23(1)(x) of the Income Tax Ordinance, 1979, (since repealed) we remand matter back to the Assessing Officer to do the same, strictly in accordance with law. However the Assessing Officer will not disallow the bad debt claim sirnply because it has been cited as a `provision for bad debt.' An add-back here can only be made if after calling for necessary explanation/clarification as the Assessing Officer might require the assessee is duly confronted and the Assessing Officer then `determines' that a certain amount is not a `bad debt.' If the Assessing Officer were to allow the provision for bad debts as a P & L a/c expense without question, as a matter of course, then the statutory requirement for his "determining" whether the debt has indeed become bad would be rendered redundant which of course cannot be the case as no provision in a statute can be seen as having become redundant.

Matter pertaining to bad debt as a charge to the P&L account is remanded to the Assessing Officer for its reappraisal strictly in accordance with express statutory stipulation / judgment of the Karachi High Court (1976) 34 Tax 158 and observations recorded Supra:---

(b)Bad debts taxed in earlier years (A.Y.2001-2002).

(i) According to the DR, the CIT(A) was not justified to delete the addition of Rs.132,072,000 made on account of bad debts taxed in earlier years in contravention of provisions of section 23(1)(x) of the Income Tax Ordinance, 1979.

(ii) According to the learned AR, the issue has already been decided in favour of the banks by the learned ITAT in I.T.As. Nos.1066 to 1073/IB of 2004, dated 22-12-2004, The AR has also cited case law of Indian jurisdiction as under:

1999 PTD 1972; (1997) 226 ITR 605 (Guj); (1983) 16 TTJ (All.) 65; (1985) 21 TTJ (All.) 233; (1998) 100 Taxmann 109 (Cal); (1960) 39 ITR 104; (1983) 143 ITR 166 (Guj.); (1989) 30 ITD 245 (Delhi); (1990) 32 ITD 315 (Born.); (1999) 65 TTJ (Jp). 480; (1987) 27 TTJ (Delhi) 50; (1985) 21 TTJ (Indore) 251 and (1988) 24 ITD 97 (Ahd).

(iii) It is the assessee's AR's contention that in cases of Banks, then Assessing Officer cannot insist for concrete evidence that the debt had indeed become irrecoverable and mere debit to the P&L account of debts by banks is, prima facie, evidence that the same are allowable expenditure.

(iv) We have looked into the matter and in our considered judgment, in matter pertaining to bad debt taxed in earlier years, a bad debt claim once rejected by the Assessing Officer can be considered by him again in a subsequent year and there is no bar in law regarding the same. However, the Assessing Officer will be required to "determine" whether the bad debt claim is justified or not whenever the debt claim comes up before him. It is not a question of requiring the assessee-Bank to submit `unassailable proof' in this regard but rather the assessee-Bank will have to answer any query raised by the Assessing Officer in case he has any doubt that a debt qualified to be treated as having become bad. The ITAT judgments cited by the learned AR are in our considered opinion not consistent with express statutory stipulation and are hence rendered judgments "per incurium" and therefore do not constitute binding precedent and the stare decisis rule will not apply.

(v) As held by us in the case of provision for bad debt Supra, matter pertaining to bad debt taxed in earlier years also requires the Assessing Officer's scrutiny and finding as to admissibility and we therefore remand matter pertaining to such bad debts back to the Assessing Officer for his appraisal strictly in accordance with law.

(c)Taxation of profit on NIT units as dividends (A.Ys. 2000-2001 and 2001-2002)

(i) According to the DR, the CIT(A) was not justified in holding that profit on NIT units should be treated as dividend chargeable tax at concessionary rate of 5% instead of normal rate applied on it being a composite income of banking business.

(ii) The AR of assessee submits that this issue has elaborately been discussed by the Income Tax Appellate Tribunal in its judgment 2000 PTD (Trib.) 507. The relevant part is reproduced below:

"We are convinced to hold that not only is NIT a company income derived therefrom by unit holders also constitutes dividend income. Consequently, the dividend income derived from the National Investment Trust Limited shall be charged to tax at the concessional rate of 5% as already discussed above."

(iii) In our judgment, the relief as accorded by the CIT(A) isconsistent with statutory stipulation and applicable case-law.1j Hence maintained.

(d)Corporate Assets Tax (CAT) (A.Y. 1993-94)

(i) According to the DR, the CAT payment amounting to Rs.500,000 has been claimed by the assessee as a P&L deduction under section 23(l)(xviii) and the Assessing Officer rightly disallowed the same and added back to income on the ground that there was no express provision in the statute that permitted charge of CAT to the P&L account.

(ii) According to the AR of assessee, the CAT payment does qualify as P&L account charge as it was expended wholly and exclusively for the purposes of business and there was no K element in the expense that was in the nature of capital expenditure or personal expenditure. Furthermore, it is contended that there is no specific bar to claim such expenditure as a P&L account deduction. It is further argued that CAT is levied on the assets of the company and hence identical to wealth tax and wealth tax paid on income yielding assets was a permissible deduction as held in 1980 PTD (Trib.) 61 and (1981) 43 Tax 74.

(iii) After due consideration, we find that the CIT(A) has rightly-allowed CAT payment as a legitimate charge to the assessee-Company's P & L account.

(e)Initial depreciation (A.Y. 1993-94)

(i) According to the DR, office equipment is not covered by the definition of "plant and machinery" as contained in Rule 8(4) of the Third Schedule to the Income Tax Ordinance, 1979 (since repealed) and hence assessee's claim of initial depreciation had no statutory sanction in law.

(ii) According to the AR of assessee, office equipment does constitute machinery as held by the CIT(A) and it is emphasized that as normal depreciation has been allowed on "office equipment", there was no justification to disallow initial L depreciation.

(iii) We agree with the arguments of the learned AR of assessoe and we maintain the relief as accorded by the CIT(A).

(f)Zakat on NIT Units (A.Y. 1993-94).

(i) According to the DR, the CIT(A) has unjustifiably deleted the addition made by the Assessing Officer. It is explained that the assessee never actually paid any amount by way of Zakat to the Central Zakat Fund.

(ii) The AR of assessee has pointed out that Zakat is permissible expense under section 25 of the Zakat and Ushr Ordinance, 1980 and has been so declared by C.B.R.'s Circular No. 28 of 1980, dated 29-10-1980. The AR has pointed out that Zakat was deducted by the company on dividend income during the assessment year under appeal and whenever this amount is refunded to the appellant for the reason that the Hon'ble High m Court vide order, dated 22-10-1990 had held that the Zakat and Ushr Ordinance, 1980 does not apply to the bank and therefore the investment made by bank in NIT units was not liable to compulsory deduction of Zakat. Any amount received by way of refund would be taxable under section 25 of the Ordinance. Thus it is contended that the relief as accorded by the CIT(A) by deleting addition made by the Assessing Officer was fully justified.

(iii) We have looked into the matter and we agree with the contention of the AR. The relief as accorded by the CIT(A) is hereby maintained.

(g) Taxation of dividend at concessionary rate (A.Ys. 2000-2001 and 2001-2002)

(i) According to the DR, the learned CIT(A) was not justified in directing to tax dividend income at the rate of 5% instead of normal tax rates applicable to banking companies.

(ii) According to the AR, this issue has also been elaborately discussed by the Income Tax Appellate Tribunal in its judgment 2000 PTD (Trib.) 507. The relevant part is reproduced below:--

"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. It fact, it would only be in the case of exclusion of a banking company from this concession that a specific mention thereof would he 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 that even banking public companies are assessable to tax at the concessional rate."

The learned AR of assessee argues that the ITAT has also followed this issue in favour of the assessee-Bank in I.T.As. N Nos. 93-94/LB/01.

(iii) We have heard both sides and in our considered judgment, the finding is recorded by the CIT(A) is fully justified and is hereby maintained.

(h).Interest credited to suspense account (A. Ys. 2001-2002& 2002-2003).

(i) According to the DR, the CIT(A) was not justified to delete the addition made on account of interest credited to suspense account instead of profit and loss account as per method of accounting regular employed by the assessee. The DR further submits that the CIT(A) was not justified to delete mark-up expenses paid to suspense account.

(ii) AR of assessee-Bank, submits that the Tribunal has already decided this issue in favour of the assessee-Bank. The following case law has been referred to:

I.T.As. Nos. 3458, 2920 to 2922/LB of 2001; (2002) 85 Tax 245 (Trib.); I.T.As. Nos. 2715-2716/LB of 1999; I.T.A. No.1658/LB of 2003 and I.T.As. Nos.3623-3624/LB of 2002.

(iii) After examining the matter and perusal of the cited case-law, we maintain the findings as recorded by the CIT(A) in favour of the assessee.

(i)Allocation of expenses relatable to exempt capital gain (A. Ys. 2001-2002 and 2002-2003).

(i) According to the DR, the learned CIT(A) was not justified in disapproving the allocation of expenses to exempt capital gain on sale of shares and in deleting addition made on this account without appreciating the facts of the case.

(ii) According to the learned AR, the matter stands decided in assessee's favour and the following judgments are referred to:

(2004) 90 Tax 128 (Trib.)

I.T.As. Nos. 1066 to 1073/LB of 2004, dated 22-12-2004

(iii) We have looked into the matter and we are satisfied that apportionment of expenses between exempt capital gain and income earned from other operations is not permissible in law. The finding as recorded by the CIT(A) in favour of the assessee- Bank is maintained.

(j)Share enlistment fee (A.Y. 2002-2003).

(i) . According to the DR, the CIT(A) was not justified to delete addition on account of "share enlistment fee". It is the DR's contention that such expense is capital in nature and hence not permissible in terms of section 23 of the Income Tax Ordinance, 1979 (since repealed).

(ii) According to the AR of assessee, the bank incurred an expenditure. of Rs.790,598 on account of fee paid to the Stock Exchange of Pakistan under the Securities and Exchange Commission Regulations. The DCIT held this expense as inadmissible, on the ground that it related to enhancing the sharecapital of the Bank and any expense incurred in respect of share capital was held to be capital in nature. The AR argues that fee paid to SECP has no nexus with enhancement of share capital of the bank and the DCIT had misconstrued the facts and misapplied the law. Case-law relied upon by the DCIT is assailed as not relevant at all as facts are different from that of the assessee. The AR submits that the fee paid to SECP was an expense wholly and exclusively for the business of the bank and hence not capital in nature.

(iii) We have examined the matter and we agree with the contention of the learned A.R. The relief as accorded by the CIT(A) in favour of the assessee-Bank is maintained.

(k) Expenditure under section 23(l)(xxi) (A.Ys. 2000-2001 and 2001-2002).

(i) According to the AR of assessee-Bank, the CIT(A) has unjustifiably maintained addition made by the Assessing Officer and it is pointed out that there was no express statutory stipulation that expenditure claimed under section 23(l)(xxi) be admitted only if such expenditure was first incorporated in income. The AR explained that mark up / interest credited to the suspense account relates to non-performing loans and has been specifically declared as allowable deduction by the legislature.

(ii) After due consideration of the matter, we find that the department rationale for disallowance of such expenditure under section 23(l)(xxi) appears to be misconceived and we accordingly direct that the expenditure be admitted in full.

(1)Amortization of deferred cost (A.Ys. 1998-99 to 2002-2003).

(i) According to the AR of assessee-Bank, the CIT(A) has wholly unjustifiably confirmed the addition made by the Assessing Officer on the ground that the expenditure in question incurred on new branches renovated etc. was capital in nature when in actual fact the expenditure was in essence revenue expenditure and had been deferred by the assessee over a three years period in order to spread out the expenditure over a reasonable time-frame and no asset of enduring nature had been credited. The S AR has referred to case-law cited as I.T.As. Nos.93-94/LB of 2001, dated 14-6-2002; 137 ITR 652; 168 ITR 731 and 1998 PTD (Trib.) 1935.

(ii) We have looked into the matter and we find that the expenditure is indeed not in the nature of capital expenditure and can legitimately be seen as revenue expenditure. Hence allowable in full, as claimed.

(m)Excess perquisites under section 24(i) (A.Ys. 2000-2001 and 2002-2003).

The issue has already been decided by the Tribunal against the assessee in judgment cited as I.T.A. No.2449/LB of 1999, dated 12-4-2000. We are bound by that judgment and as the CIT(A) finding is consistent with the cited order of the Tribunal, the same is maintained and the assessee's Ground is refused.

(n)Concessional loans (A.Ys. 2001-2002 and 2002-2003).

Here too, the Tribunal has ruled against the assessee in I.T.A. No. 652/KB/1999-2000, dated 24-4-2000 and the CIT(A) having followed the said judgment, we will maintain the same assessee's. Ground is refused.

(o)Loss from investment in securities (A.Y. 2000-2001).

(i) The CIT(A) has upheld the Assessing Officer's disallowance of loss claimed by the assessee from alleged dealings in securities. The CIT(A) has explained that when called upon to furnish details in this regard, the assessee was unable to do so, hence the claimed loss had been ruled by the Assessing Officer to be unsubstantiated inadmissible.

(ii) The AR of assessee has submitted that the .assessee-Bank routinely dealt in securities as normal business activity and any loss arising therefrom was a business loss and qualified to be admitted as such by the Department.

(iii) We have looked into the matter and we find that in the absence of pertinent details regarding alleged transactions in securities that resulted in loss to the assessee, the CIT(A) has rightly upheld the treatment as accorded by the Assessing Officer.

(p)Disallowance of depreciation on vehicles and building (A.Y. 2000-2001)

(i) In both cases pertaining to disallowance of depreciation, it is noted that comprehensive details to substantiate the claims have not been furnished resulting in curtailment of claim.

(ii) The AR of assessee-Bank submits that only minor particulars could not be made available and the same did not justify the T disallowance made by the Assessing Officer.

(iii) In our judgment, the Assessing Officer has only tinkered with the depreciation claim here which is not proper. Assessee's explanation on the matter appears to be plausible. That being so, the disallowance as made by the Assessing Officer and approved by the CIT(A)is hereby deleted.

(q)Initial depreciation on office equipment (A.Y. 2000-2001).

(i) This Ground has been withdrawn by the assessee.

(r)Taxation of compensation on delayed refund (A.Y. 2001-2002).

(i) The assessee-Bank received compensation from the Department on account of delayed disbursement of refund due to the bank. Such compensation received was not declared by the bank as "income" as it was in the nature of damages for wrongful possession of assessee's property (i.e. refund) by the Department. It is the AR's assertion before us that any damages/ compensation/interest etc. received for sterilizing of profit, for loss to property or injury to capital asset are capital receipts not chargeable to tax. Following case-law has been referred to:--

U (1993) 199 ITR 303 (Ker); (1970) 76 ITR 467 (SC); (1979) 3 SCC 150 and (1989) 179 1TR 157.

(iii) The CIT(A)upheld the addition of compensation amount to income with the bland observation that the AR of assessee could not sufficiently rebut the findings of the Assessing Officer.

(iv) In our considered judgment, when compensation admittedly pertains to refund due to the assessee and not disbursed in time by the Department, such compensation is without doubt capital in nature and hence not taxable under the Income Tax

Ordinance, 1979 (since repealed). We therefore vacate the CIT(A) finding and direct that the addition as made by the Assessing Officer be deleted.

Resultantly, both the departmental as well as assessee's appeals are disposed off as above.

CONCURRING NOTE BY LEARNED MEMBER (JUDICIAL).

I have gone through the judgment of my learned Accountant Member and I fully agree with him. As far as the issue of provisions of bad debt is concerned, I will like to further add that due to having specialized knowledge in banking right from the start of my career i.e. 1971 under the guidance of my father who had special acumen of the banking laws and was working for Punjab Provincial Cooperative Bank, National Bank of Pakistan and I myself being working for Habib Bank Ltd. Muslim Commercial Bank Ltd. and Agricultural Development Bank Ltd. along with Special Prosecutor in Offences in Banks. As far as recovery matters were concerned, when I started my career in August 1971, the civil Courts had the jurisdiction which was subsequently transferred to Banking Courts specially constituted under 1979 Ordinance and then the Banking Tribunal which used to hear mark-up cases only. I would like to add that the "bad debts" of scheduled banks were supervised by the then Banking Council till to date and the procedure for writing off the bad debts was that the concerned branch shall give in black and white to their Legal branch who shall forward the case to the Banking Council in which the decision of the Banking Council was to be got approved by the State Bank of Pakistan. None of the cases in which the properties were mortgaged or hypothecated or stocks-in-trade/ machinery had a lien over the property was ever written off. The escalation in the prices of the mortgaged property went sky high and it was very easy for the banks to recover the amounts. The Government was so much interested in the recovery of the loans that not only Banking Courts of the level of the Sessions Judges were specifically made but for a certain amounts the Special Tribunals in the High Courts were also made. Now in the near past the Government has amended the Financial Institutions (Recovery of Loans) Ordinance, 2001 in which a provision in law has been incorporated so as to empower the sale of the mortgaged property by the Financial Institutions itself without involving Court.

Not only this but non-payment of the banking dues had also been made a criminal offence under the NAB Ordinance. In the recent past "The Election Laws" have also been amended, so as to oust out any candidate, who is a defaulter of any kind, right from Union Council, District Council, Provincial Assembly, National Assembly and Senate also.

In the new schemes of loans, for setting up any factory, manufacturing unit or any sort of such business activity, with the mortgage of land and machinery, simple mortgage by deposit of "title deeds" of residential houses of the directors etc. have also made a must as a collateral.

This is to be proved by the bank claiming bad and doubtful debts that they have made an effort and now the position is that they have to loose good money for the bad money.

In view of the above, I fully agree with the arguments of the learned Accountant Member that while it may be sufficient to simply cite provisions for bad debts, when writing off a debt as bad nevertheless the bank will have to render such explanation as may be called for by the Assessing Officer at assessment stage before the debt can actually be admitted as having become "bad". Only if the Assessing Officer is satisfied by the explanation can the debt be properly classified as a bad debt under income tax law.

I concur and agree with the final findings of the appeal.

C.M.A./476/Tax(Trib.)Order accordingly.