I.T.As. Nos.843/LB to 846/LB of 2003, decided on 14th June, 2005. VS I.T.As. Nos.843/LB to 846/LB of 2003, decided on 14th June, 2005.
2006 P T D (Trib.) 499
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Tauqir Afzal Malik, Judicial Member and Muhammad Munir Qureshi, Accountant Member
I.T.As. Nos.843/LB to 846/LB of 2003, decided on /01/.
th
June, 2005. (a) Income Tax Ordinance (XXXI of 1979)---
---S. 30---Income from other sources---"Interest income" arising to assessee was liable to be brought to tax under S.30 of the Income Tax Ordinance, 1979 as `income from other sources' and the same did not constitute assessee's `business income'---Such `interest income' fell under the head "income from other sources" under S.30 of the Income Tax Ordinance, 1979.
(2002) 85 Tax 245 (Trib.) distinguished.
1999 PTD (Trib) 708; 1998 PTD (Trib.) 3179; 2002 PTD (Trib.) 250 and 2000 PTD 363 rel.
(b) Income-tax---
----Res judicata---Applicability---Erroneous treatment in earlier years did not constitute a valid precedent in law and has no binding force---Each year is independent and res judicata did not apply in income tax proceedings.
(c) Income Tax Ordinance (XXXI of 1979)----
---Ss. 30 & 136---Appeal to Appellate Tribunal---Challenge to first round remand order before the Appellate Tribunal in the second round of appeal---Validity---First Appellate Authority set aside the order of Assessing Officer for another opportunity to explain its position with regard to the nature of `interest income'---Assessee did not file any appeal before Appellate Tribunal against the order of First Appellate Authority---Remand order in the first round could not be challenged before the Appellate Tribunal in the second round of Appeal.
(d) Income-tax---
----Assessment---Relevant Income-tax statute must finally prevail---Only in the case of Double Tax Avoidance Treaties negotiated between sovereign States the Treaty Terms will have primacy and will prevail over any other law, including the relevant statute, and that is the only exception---In all other cases involving income tax assessment, the relevant income tax statute would be supreme.
(e) Income Tax Ordinance (XXXI of 1979)---
----Ss. 156 & 30---Rectification of mistake---Assessee's income from other sources under S.30 of the Income Tax Ordinance, 1979 wrongly set off against brought forward business losses was not permissible under the law and such mistake was rectifiable under S.156 of the Income Tax Ordinance, 1979 as it was a mistake of computation of assessee's total income/loss.
(f) Income Tax Ordinance (XXXI of 1979)---
----S.30---Income from other sources---Income from `sale of scrap', `gain on sale of assets' and `miscellaneous income' did not constitute `income from other sources' and was not assessable under S.30 of the Income Tax Ordinance, 1979---Income arising against said three heads was the assessee's regular `business income' and was to be so treated for purposes of determination of assessee's total income/loss.
Saeed Ch., F.C.A. for Appellant.
S.A. Masood Raza Qizalbash, D.R. for Respondent.
Date of hearing: 14th June, 2005.
ORDER
These appeals by a private limited-Company arise out of order passed by the CIT(A).
2. According to the AR of assessee company, the provisions of section 156 have been wrongly invoked by the Assessing Officer. I; is argued that no mistake either of fact or of law was patent on the face of the assessment order for 1997-98 and 1998-99 and the Assessing Officerhas arbitrarily held that assessee-Company's interest income from PECO was `income from other sources' hence liable to be brought to tax under section 30 of the Ordinance and that the same could not be set off against the brought forward business loss of the Company. It is the AR's contention that similar interest income arose to the assessee in the earlier years as well and the same was never treated as `income from other sources' under section 30 but was always treated as part of the assessee's regular business income. Besides, assessee-Company's interest income from PECO, the Assessing Officer has also treated income from `sale of scrap', `gain on sale of assets'. and `misc. income', as constituting `income from other sources' liable to be brought to tax under section 30 and, here too, it is the AR's contention that such income arising to the Company is in the context of the Company's regular business operations and hence constitutes its business income.
3. With regard to the assessee-Company's `interest income' from PECO, the AR has made an alternative submission that the said `interest income' is reflected in the Company's final accounts on accrual basis and not on actual receipt basis. It is the AR's contention that such income received on accrual basis was not liable to be included in the assessee's total income and reference is made to judgment cited as (2002) 85 Tax 245 (Trib.)
4. It is also the A.R's. contention that addition made under section 25(c) was liable to be set off against the brought forward loss pertaining to assessment year 1995-96 and only after allowing set off can the resultant loss/income be carried forward.
5. In assessment year 1999-2000 also, the Assessing Officer has disallowed set off of `interest income' from PECO against brought forward business loss of the Company and it is the appellant's contention that such treatment accorded is not correct for the reasons cited Supra in the case of assessee's appeals against the orders passed under section 156 for assessment years 1997-98 and 1998-99 and the CTI(A) has wrongly confirmed the treatment in this regard accorded by the Assessing Officer.
6. In assessment year 1999-2000, the appellant also contests the Assessing Officer's disallowance of depreciation claim arising on account of addition to fixed assets value resulting from exchange rate fluctuation. The CIT(A) has confirmed the disallowance made by the Assessing Officer on the ground that there was no physical addition in installed machinery. However, before the Tribunal the AR of appellant has argued that the disallowance made by the Assessing Officer was due to non-use of part of the machinery.
7. Finally, in assessment year 1999-2000, the Assessing Officer has passed an order under section 52 holding the assessee liable for alleged tax not deducted at source under sections 50 (1) and 50(7b). It is the appellant's contention that the Assessing Officer is misconceived in his view as the assessee had deducted tax in accordance with law.
8. According to the DR, the provisions of section 156 have been rightly invoked in the assessment years 1997-98 and 1998-99 as it was indeed apparent on the face of the assessment made under section 62 that the assessee-Company's interest income' from PECO had wrongly been set off against company's brought forward business loss. It was explained that the assessee company's `interest income' from PECO constituted `income from other sources' and the same was assessable under section 30 of the Ordinance and such `interest income' could not be treated as business income under any circumstances. Reference is made by the DR to the following case-law:
1999 PTD (Trib.) 708
1998 PTD (Trib.) 3179
2002 PTD (Trib.) 250
2000 PTD 363
9. With regard to assessee AR's contention that `interest income' form PECO had in the past always been classified as assessee-Company's business income, the DR opined that each year is an independent time frame and wrong treatment meted out in the past years with regard to assessee-Company's `interest income' from PECO did not mean that the Assessing Officer must repeat same in assessment years 1997-98, 1998-99 and 1999-2000.
10. With regard to income arising to the Company from `sale of scrap', `gain on sale of assets' and `misc. income', it is the DR's contention that such income has no direct nexus with the regular business of the company and was thus liable to be assessed as `income from other sources' under section 30.
11. With regard to the assessee-Company's AR's alternate argument that `interest income' from PECO having been received by the Company on accrual basis and not on actual receipt basis, the same was not to be included in the assessee's total income, the DR submits that under the mercantile system of accounting followed by the assessee-Company, all income arising, whether on accrual or actual receipt basis, was liable to be included in the assessee's computation of total income. As for the A.Rs. reference to Tribunal's judgment in which a contrary view had allegedly been upheld, the DR argued that the case-law cited was not applicable in assessee's case as the cited case-law was with regard to a financial institution, (bank) and the assessee-Company admittedly was not a financial institution but derived income from sale of general engineering machinery.
12. In the case of submission made by the assessee's AR regarding set off of section 25(c) addition against loss arising in assessment year 1995-96, the DR pointed out that this aspect finds no mention in the order of the CIT(A) and cannot be taken up by the Tribunal for the first time.
13. As regards appellant's depreciation claim in assessment year 1999-2000, the DR submitted that depreciation was only admissible against available fixed assets and the CIT(A) had rightly confirmed the disallowance made by the Assessing Officer.
14. Finally, with regard to order passed under section 52 in assessment year 1999-2000, the DR has pointed out that specific confrontation had been made by the Assessing Officer to the assessee company pointing out non-deduction of tax under sections 50(1) and 50(7b) and it was only when the assessee offered no satisfactory explanation that an adverse inference was drawn.
15. We have heard both sides, perused the case-law cited and examined the available record and our findings are recorded as under:--
(1) We are satisfied that `interest income' arising to the assessee from PECO is liable to be brought to tax under section 30 of the Ordinance as `income from other sources' and the same does not constitute assessee's `business income'. The case-law cited by the DR is fully applicable here and conclusively clarifies that such `interest income' falls under the Head "income from other sources" under section 30 of the Ordinance.
(2) Assessee's argument that `interest income' from PECO had in the past always been treated as assessee-Company's business income and shall therefore continue to be 'so treated, has been looked into and we find that it has no force. If it indeed be a fact that assessee-Company's `interest income' form PECO in the past arose exactly in the same manner as it has done in assessment years 1997-98, 1998-99 and 1999-2000 then we have no hesitation in concluding that such `interest income' constituted assessee company's income from other sources' and the Assessing Officer erred in treating the same as `business income' and such erroneous treatment in earlier years does not B constitute a valid precedent in law and has no binding force. Each year is independent. And "res judicata" does not apply in income tax proceedings.
(3) This is the second round of appeals being pursued by the assessee-Company. In the first round, the CIT(A) set aside the order of the Assessing Officer for 1997-98 and 1998-99 for according assessee-Company another opportunity to explain its position with regard to the nature of `interest income' arising from PECO. The assessing-Company did not file any appeal before the Tribunal against the order of the CIT(A) contesting remand. Validity of the CIT(A) remand order in the first round cannot be challenged before the Tribunal at this stage as has been attempted by the appellant's AR during the course of the present appeal proceedings.
(4) Appellant's alternate argument that `interest income' having been allegedly received on accrual basis the same cannot be included in the computation of assessee's total income/loss has been examined carefully and is found to be bereft of any merit whatsoever. Under the mercantile accounting system followed by the assessee-Company, all income, howsoever arising, must be included in the computation of assessee's total income. The case-law cited by the appellant's AR has no relevance here. During the course of arguments made before the Tribunal, appellant's AR has also referred to "prudential regulations". We have to emphasize that in income tax assessment, it is the Income Tax Ordinance that must finally prevail. Only in the case of Double. Tax Avoidance Treaties negotiated between sovereign States while the Treaty Terms have primacy and will prevail over any other law, including the Income Tax Ordinance. However that is the only exception. In all other cases involving income tax assessment, the Income Tax Ordinance is supreme.
(5) In our judgment, recourse to the provisions of section 156 of the repealed Ordinance in assessment years 1997-98 and 1998-99 is fully justified. Scrutiny of the assessments made under section 62 originally makes it readily apparent that assessee's E `income from other sources' under section 30 has indeed wrongly been set off against brought forward business losses which is not permissible under the law. Such mistake is rectifiable under section 156 as it is a mistake of computation of assessee's total income/loss.
(6) Appellant's contention during the course of appeals proceedings that "inter company transactions" between assessee-Company and PECO were outside the purview of taxing provisions under the Income Tax Ordinance, is wholly without any basis. The fact of the matter is that assessee-Company advanced moneys to PECO and earned; interest thereon and such interest is without any doubt assessee `income from other sources' chargeable to tax under section 30.
(7) In the case of income from `sale of scrap', `gain on sale of assets' and `misc. income' such income does not constitute `income from other sources' and is not assessable under F section 30 Income arising against these three Heads is the assessee's regular `business income' and is to be so treated for purposes of determination of assessee's total income loss.
(8) Appellant's contention that income assessed under section 25(c) was liable to be adjusted against assessment year 1995-96 brought forward loss does not arise from the impugned order of the CIT(A). Hence ignored.
(9) With regard to disallowance made by the Assessing Officer against assessee-Company's depreciation claim, the CIT(A) has remanded matter pertaining to depreciation claim back to the Assessing Officer for re-determination in accordance with law. We confirm the CIT(A) direction and further direct the Assessing Officer to appraise assessee-Company's overall depreciation claim strictly in the light of express statutory stipulation. The Assessing Officer will accord full opportunity to the assessee-Company to explain its depreciation claim exhaustively and will appraise the claim strictly in accordance with law and will not make any add-back here on whim or presumption with regard to alleged non-use of any part of the installed machinery. As for any revaluation of fixed assets as a sequel to exchange rate fluctuation resulting in any change in assessee's depreciation claim, the assessee-Company will explain the matter strictly in the light of the applicable statutory provision/rule and the Assessing Officer will record firm findings thereon.
(10) With regard to order passed under sections 52/86 in assessment year 1999-2000, we find that although the available record shows that specific confrontation with regard to non-deduction of tax under sections 50(1) and 50(7b) has been made by the Assessing Officer, we, nevertheless, direct the Assessing Officer to re-appraise the matter and accord necessary opportunity to the assessee company to explain its position fully. In case it is established that tax withholding has indeed not been made in accordance with law, fresh order under section 52 will be passed and additional tax under section 86 will also be charged.
Resultantly, the appeals are disposed of as above.
C.M.A./463/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Order accordingly.