COMMISSIONER OF INCOME TAX/WEALTH TAX, LAHORE ZONE-B, LAHORE VS Messrs ALI CHICKS POULTRY BREEDINGS FARM, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 2678 (2006)

Income Tax Ordinance (XXXI of 1979)---

----S.23(1)(vii)---Deduction---Contentions of the assessee were that it had its own funds and had also borrowed money from various institutions and had made investments in Khas Deposit Certificates, the income whereof was exempt from tax; assessee had claimed the investment of the Certificates from its own source and the other sources including the borrowing and thus further claimed the interest paid on borrowings as expenses of financial charges in profit and loss account---Assessee had failed to satisfy the Assessing Officer and the first Appellate Authority with regard to the investment for the purchase of Certificates from its own funds and not from the borrowed money---Financial charges claimed by assessee were disallowed---Appellate Tribunal deleted the addition made on account of financial charges---Validity---Held, Tribunal after following the decisions of superior Courts, had rightly reached the conclusion that financial charges were admissible to the assessee in terms of the requirements of S.23(l)(vii) of the Income Tax Ordinance, 1979.

1986 SCMR 968; (1992) PTD (Trib.) 1141; 1992 PTD 954 (S.C. Pak); 1991 PTD (Trib.) 531; 1995 PTD (Trib.) 677 and I.T.As. Nos. 6162 and 6163/LB of 1985-86, dated 12-2-1992 ref.

Muhammad Ilyas Khan for Appellant.

ORDER

This single order will dispose of I.T.A. No.57 of 1998 titled "Commissioner of Income Tax/Wealth Tax Lahore Zone-B, Lahore v. Messrs Ali Chicks Poultry Breeding Farm", I.T.A. No.58 of 1998 titled "Commissioner of Income Tax, Companies Zone-I, Lahore v. Messrs Burewala Textile Mills Ltd., Lahore" and I.T.A. No.60 of 1998 titled "Commissioner of Income Tax Companies Zone-I Lahore v. Messrs The Bank of Punjab Limited, Lahore" as common questions of law and fact are involved in all these appeals.

2. The assessee had his own funds and had also borrowed money from various institutions. The assessee made certain investments in KDCs, the income whereof is exempt from tax. The assessee claimed the investment in KDC from his own source and the other sources including the borrowing. The interest paid on borrowing was claimed as expenses of financial charges in profit and loss account. The assessee could not satisfy the Assessing Officer and the first appellate authority with regard to the investment for the purchase of KDCs from company's own funds and not from the borrowed money. The financial charges were disallowed and appeal before CIT (Appeals-V) went fruitless. Learned' ITAT deleted the addition made on account of financial charges and out of the order of the learned Tribunal following questions of law, statedly arisen, are referred in this appeal:

(i) Whether on the facts and in the circumstances of the case the Hon'ble Income Tax Appellate Tribunal was right in holding that the Income Tax Officer was not justified in disallowing the proportionate financial charges and the expenses of financial charges fulfilled the requirements of section 23(1)(vii) when the assessee had sufficient funds to reduce the market loans and factum of financial charges?

(ii) Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in opinion that the appellate company has fulfilled the conditions as laid down in section 23(1)(7) and therefore the entire financial charges claimed were admissible and should have been allowed in full?

3. Learned counsel for the appellant has contended that the assessee had surplus funds available with him which he had invested in KDCs. The same were not used for the purpose of business or profession. The requirements of section 23(1)(vii) of the Income Tax Ordinance were not fulfilled and as such the assessee is not entitled to claim any financial charges and expenses.

4. Heard learned counsel for the appellant and perused the record.

5. The learned Tribunal while passing the impugned decision has discussed in detail the relevant provision of law and thereafter followed the relevant case-law on the subject. Learned Tribunal while allowing the assessee financial charges followed the view in the following judgments:--

(i) 1986 SCMR 968, (ii) (1992) PTD (Trib.) 1141, (iii) 1992 PTD 954 (S.C. Pak), (iv) 1991 PTD (Trib.) 531, (v) 1995 PTD (Trib.) 677, (vi) 1992 PTD 954 (SC Pak.), (vii) 1986 SCMR 968 and (viii) I.T.As. Nos. 6162 and 6163/LB of 1985-86, dated 12-2-1992.

6. The questions raised in this appeal, have already been dealt with, the learned Tribunal has followed the decision of superior Court and then reached the conclusion that financial charges are admissible to the assessee in terms of the requirement of section 23(l)(vii) of the Income Tax Ordinance, 1979.

7. The referred questions, in the above scenario, are not required to be answered as the principle of law regarding the admissibility of the financial charges has been settled already through judgments of the superior Courts. The appeal is accordingly disposed of.

M.B.A./C-36/LOrder accordingly.