I.T.As. Nos.4011/LB and 4012/LB of 2005, decided on 18th November, 2006. VS I.T.As. Nos.4011/LB and 4012/LB of 2005, decided on 18th November, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1085 (2006)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 23, 22, 30 & 35---Deductions---Department contended that set aside of assessment by the First Appellate Authority with the direction to allow expenses claimed as revenue expenses under S.23 of the Income Tax Ordinance, 1979 notwithstanding the fact that no business was conducted and loss computed on account of expenses to be allowed under S.23 of the Income Tax Ordinance, 1979 be set off against interest income was also without any justification---No justification existed in directing to assess loss under S.22 of the Income Tax Ordinance, 1979 and after setting off loss against income under S.30 of the Income Tax Ordinance, 1979, the balance loss to be carried forward to next year as provided under S.35 of the Income Tax Ordinance, 1979---Assessee contended that according to S.34 of the Income Tax Ordinance, 1979, if interest income was assessed under the head "income from other sources" and there was loss under the head "income from business" due to expenses, this business loss will be adjusted against interest income---Validity---First Appellate Authority had set aside the assessments with the direction to assess interest income under S.30 of the Income Tax Ordinance, 1979 under the head "Income from other sources", allow expenses claimed as business expenses under S.23 of the Income Tax Ordinance, 1979 in each year and set off loss against income under S.30 of the Income Tax Ordinance, 1979 in each year and set off loss against income under S.30 of the Income Tax Ordinance, 1979 and the balance loss to be carried forward to the next year as provided under S.35 of the Income Tax Ordinance, 1979---First Appellate Authority having already set aside the assessments, Appellate Tribunal did not interfere with the order in that respect---Taxation Officer was directed that while framing fresh assessment, he should consider the relevant law and precedents.

Messrs Greys Leasing Limited v. IAC I.T.A. No.4814/LB of 1997; PTD (Trib.) 85; (1983) 48 Tax 58 (Trib.); 2002 PTD 214; 2003 PTD (Trib.) 1076 and 2005 PTD (Trib.) 621 ref.

Sabiha Mujahid D.R. for Appellant.

Muhammad Arshad, ITP for Respondent.

ORDER

Through these two appeals, the Department has objected to the consolidated impugned order of the learned CIT(A), dated 18-5-12005 for the assessment years 2001-2002 and 2002-2003 on the common ground that setting aside of the assessments with the direction to allow expenses claimed under the head "P&L A/c" as revenue expenses under section 23 of the repealed Income Tax Ordinance, 1979, are without any justification.

Mrs. Sabiha Mujahid representing the appellant-Department has contended that the learned CIT(A) was not justified to set aside the assessment with the direction to allow expenses claimed under the head "P&L A/c" as revenue expenses under section 23 notwithstanding the fact that to business was conducted during the years under appeal. She has contended that loss computed on account of expenses to be allowed under section 23 be set off against interest income during the years under appeal is also without any justification. She has argued that there was no justification in directing to assess the loss under section 22 of the repealed Income Tax Ordinance, 1979 and after setting off loss against income under section 30 during these years, the balance loss to be carried forward to next year as provided under section 35 of the repealed Income Tax Ordinance, 1979.

On the other hand, Mr. Muhammad Arshad, ITP has appeared on behalf of the assessee and is supporting the consolidated impugned order of the learned CIT(A). He has contended that the Taxation Officer has assessed the impressed income under section 30 without adjusting business loss and the learned CIT(A) following the decision of this Tribunal for the previous assessment year has issued direction to set off business loss against interest income and carry forward the balance loss to the next year. The learned counsel for the assesssee has contended that according to section 34 of the repealed Income Tax Ordinance, 1979, if interest income is assessed under the head "income from other sources" and there is loss under the head "income from business" due to expenses, this business loss will be adjusted against interest income. According to the facts of the case, the assessee-Company is deriving income from manufacturing of P.C. wires and cables. According to the learned counsel, as the company was taken over from the previous owners and at the time of taking over, the electricity and gas of the factory was disconnected and as per agreement with the previous owners, the previous owners were responsible for reconnection of electricity and gas bills, but due to the failure of previous owners, the business could not be started within time and it was a suspension period and these all facts were explained to the Taxation Officer, but he was not convinced and has charged interest income under section 30 of the repealed Income Tax Ordinance, 1979 under the head "Income from other sources". The learned counsel in support of his contention has referred the decision of this Tribunal, dated 15-5-1998 in I.T.A. No.4814/LB of 1997 in the case of Messrs Greys Leasing Limited v. IAC wherein it has been held that "the scheme of law of income under section 34 is wide enough to allow set off of the loss from one source against another income". Another decision of this Tribunal reported as 1997 PTD (Trib.) 85 has been referred wherein, it has been held that "the assessee, under section 34 of Income Tax Ordinance, 1979 is entitled to have set off amount of the loss incurred under any heads of income specified in section 15 of the said Ordinance against his income under any head assessable for that year...." Likewise, in a case reported as (1983) 48 Tax 58 (Trib.), it has been held that "where no business done in the relevant year but office maintained and expenses incurred permissible expenses would be allowable". In another case reported as 2002 PTD 214, business expenses directed to be allowed by the learned CIT(A), which were verifiable and necessary to maintain the registered office of the assessee were upheld by this Tribunal. The learned counsel for the appellant has referred the case reported as 2003 PTD (Trib.) 1076 wherein, it has been held that "interest income received by assessee qualified to be set off against interest paid on amount borrowed from directors as business income and business expenditure". This Tribunal in a case reported as 2005 PTD (Trib.) 621 has held that "the provision of section 34 of the Income Tax Ordinance, 1979 are very explicit and refer to the adjustment of the business losses assessed under one head of income against the income assessable under the other heads specified in section 15 of the Income Tax Ordinance, 1979". The learned counsel for the assessee has also referred International Accounting Standard 38, which is regarding intangible assets and where it has been mentioned that "in some cases, expenditure is incurred to provide future economic benefits to an enterprise, but no intangible asset or other asset is acquired or created that can be recognized. In these cases, the expenditure is recognized as an expense when it is incurred. For example, expenditure on research is always recognized as an expense when it is incurred."

We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A) and the assessment order.

While perusal of the consolidated impugned order, we have found that the learned CIT(A) has already set aside the assessment for the two years under review with the direction to assess interest income under section 30 under the head "Income from other sources", allow expenses claimed as business expenses under section 23 in each year and set off loss against income under section 30 and the balance loss will be carried forward to the next year as provided under section 35. As the learned CIT(A) has already set aside the assessments, we are not interfering the consolidated impugned order in this respect. The Taxation Officer however, directed that while framing fresh assessment for the two years under review, he should consider the relevant law and the cases decided by this Tribunal as well as by the Hon'ble Superior Courts in this respect.

Both the appeals filed by the Department are decided in the manner as indicated above.

C.M.A./232/Tax (Trib.)Order accordingly.