I.T.A. No. 3391/LB of 2005, decided on 24th February, 2007. VS I.T.A. No. 3391/LB of 2005, decided on 24th February, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2199 (2007)

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

----S.8---All Officers to follow the orders of the Central Board of Revenue---Central Board of Revenue was the highest administrative authority in the income tax hierarchy and its instructions by virtue of S.8 of the Income Tax Ordinance, 1979 were binding on all its subordinate officers.

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

----S.80C---C.B.R. Circular. No.12 of 1991 dated 30-6-1991---Tax on income of certain contractors and importers---Proportionment of expenses---Circular No.12 of 1991 dated 30-6-1991 speaks of the proportionment of the expenses relating to sales covered by presumptive income and the other sales and not proportionment of the same with purchase through import and the other sales.

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

----Ss.62 & 80C---Circular No.12 of 1991 dated 30-6-1991---Assessment on production of accounts, evidence etc.---Proportionment of expenses against imports/purchases---Assessing Officer, while computing the income, had proportioned the expenses incurred by the assessee against imports/purchases in respective of presumptive income sources vis-a-vis the local sales---Validity---Appellate Tribunal directed that the expenses shall be proportioned strictly as per C.B.R. Circular No.12 of 1991 dated 30-6-1991 and the proportiomnent shall be made by .adopting import sales and local sales as the denominators.

(d) Income tax---

----Expenses incurred by any business house in respect of various sources of income to have nexus towards the total sale and could not be left to the will and wish of the Assessing Officer with regard thereto.

(e) Income tax---

----Central Board of Revenue---Status---Central Board of Revenue though was a body in the highest esteem but still did not have any place in the judicial hierarchy, and had full power to explain the provision of an

enactment for making it as practical as possible while guiding its subordinate officers but through such directions it could not be allowed to enter into the sphere of legislation.

Central Insurance Company's case 1993 PTD 766 rel.

Naveed A. Andrabi for Appellant.

Muhammad Aslam Bhatti, D.R. for Respondent.

ORDER

This appeal has been filed on behalf of the assessee.

2. Brief facts of the case are that the appellant, a Private Limited Company, derives income from various sources. It includes import, supply, contracts, local sale commission, property income, short term investment, sale of fixed assets, dividends/interest and income covered under section 80-C of the repealed Ordinance. The income of the assessee from the sources that pertained to presumptive tax regime was assessed under section 80-C and other sources which include local sale, commission, property income as well as sale of fixed assets etc. were obviously subjected to regular assessment. While bifurcating the two sources the Assessing Officer also separately proportioned the expenses which were relatable to presumptive tax income and the income taxable under section 9. The base for this bifurcation was Circular No.12 of 1991 issued by Central Board of Revenue which was released to cover the situations like the one in this case. Before we move on to the status of the circular in hand it will be worth mentioning that the same has been reproduced by the C.I.T.(A) in its order.

Central Board of Revenue is the highest administrative authority in the income tax hierarchy and its instructions by virtue of section 8 of Income Tax Ordinance, 1979 are binding on all its subordinate officers. The Assessing Officer, therefore, does not have any escape but to accept the directions given through the Circular No.12 of 1991. The entire circular speaks of the proportiomnent of the expenses relating to sales covered by presumptive income and the other sales and not proportionment of the same with purchase through import and the other sales. The expenses are always incurred in relation to sale or supply and purchase as well as import is a part of the process. The need for this comment is that the Assessing Officer while computing the income has proportioned the expenses incurred by the assessee against imports/purchases in respect of presumptive income sources vis-a-vis the local sales. This method of proportionment is not as per the direction of the Central .Board of Revenue through said Circular No.12. In fact learned C.I.T.(A) has dilated upon and discussed this issue in the order impugned before us but however has set aside the case and have left it to the discretion of the Assessing Officer.. The A.R. has shown dissatisfaction to the finding thereof and wants a clear direction. Furthermore, he claims that the expenses claimed in his own profit and loss expenses are as per the said instructions hence should be accepted:

3. So far as the parameters are concerned one feel convinced that the A.R. is correct and that the D.R. is not clear in its versions. The expenses incurred by any business house in respect of various sources of income does have nexus towards the total sale and cannot be left to the will and wish of the Assessing Officer with regard thereto. This Tribunal has in a number of cases given guideline in respect of cases like this, Central Board of Revenue though is a body in the highest esteem but still does not have any place in the judicial hierarchy. It has full power to explain the provision, of an enactment for making it as practical while guiding its subordinate officers but through such directions it cannot be allowed to enter into the sphere of legislation. Re: Central Insurance Company 1993 PTD page 766 SC of Pakistan. While calculating income under sections 19, 20 and 30 respectively of the erstwhile Income Tax Ordinance, 1979 the provisions provided for allowance of expenditure are sections 20, 23 and 31 respectively. If an assessee has various sources which are covered under various provisions as above he is entitled to the expenses provided in the sections mentioned hereinabove. The obvious criteria is that the same must have nexus with the source against which the same is being claimed. The problem arises where there is one establishment in respect of various sources like exempt source, presumptive income and other sales etc. In such like situation if the assessee is in a position to clearly establish as to which expense relates to which source there arises no problem. However, where the accounts are prepared in a manner that its nexus with the source is not clearly determined guidance is given in the Omni Bus Clause of section 23(xviii) which allows the expenses laid out or expended for the purpose of earning income. This provision has provided for an allowance of those expenses which if are not covered under any specific head of section 23 can still and rather should be allowed if the same have nexus to the source. In a situation which has a clarity like the one discussed by us above no other direction be that from Central Board of Revenue or any other subordinate departmental officer can come in the way of the provisions of law. However, where the accounts are complex and one is not in a position to clearly define the nexus of the expenses towards various sources separately; Circular No.12 of 1991 appears to be as the best guideline. It is true, that even the said circular is not comprehensive enough and leaves many situations as unanswered but, however, since upto this day i.e. 16 years after the same no better formula or criteria could be chalked out, we will support the same by treating it as the best alternative. We are fully conscious that circular is not binding on appellate authorities. Our agreement with the same is for the-reason that the law has provided for an Omni Bus Clause that the expenses should have nexus with the respective sources and this is perhaps the only method to .develop the same in the absence of a clear and direct relations of the claim of the expenses with the source. The upshot of the above discussion, therefore, is obvious. In this case while calculating the expenses of the Assessing Officer has not followed the directions which were binding on him. The C.I.T.(A), therefore, has made the discussion in correct perspective. I agree with the learned A.R. that the direction should have been more particular. It is true that Income Tax Appellate Tribunal cannot go into the actual calculations and the figures hence agreement with the C.I.T.(A) to the extent of set aside is obvious. The direction however; is given that the expenses shall be proportioned strictly as per Circular No.12 and the proportiomnent shall be made by adopting import sales and local sales as the denominators.

4. The appeal accordingly stand decided.

C.M.A./71/Tax(Trib.)Order accordingly.