I.T.A. No.636/KB of 2005, decided on 26th May, 2006 VS I.T.A. No.636/KB of 2005, decided on 26th May, 2006
2007 P T D (Trib.) 673
[Income Tax Appellate Tribunal of Pakistan]
Before Muhammad Ashfaq Baloch, Judicial Member and S.A. Minam Jafri, Accountant Member
I.T.A. No.636/KB of 2005, decided on 26/05/2006.
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 23(1)(xviii)---Deductions---Amalgamation expenses-Disallowance of amalgamation expenses for the reason that such expenses were in the nature of preliminary/incorporation expenses and not admissible-Validity---Amalgamation' expenses were not for incorporation or formation of any new entity, but were for merger/amalgamation of already operational three Modarabas for business reasons and could not be held as capital expenditure or preliminary expenditure and which could not be capitalized---Doctrine of `Nihil Dicit' was attracted in the situation---Appellate Tribunal vacated setting aside directive of First Appellate Authority and directed to allow such expenses as Revenue admissible deduction.
1997 PTD 390 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 80D & Second Sched., Part-IV, Cl. (32F)---Minimum tax on income of certain companies and registered firms---Exemption---Modaraba---Contention was that minimum tax under S.80D of the Income Tax Ordinance, 1979 on net receipts/turnover was not leviable being a Modaraba, it was exempt from such levy under Cl. (32F) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979---Validity---Appellate Tribunal directed deletion of such levy, as admittedly appellant/assessee was exempt from such levy under Cl. (32F) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979.
Akbar G. Merchant, F.C.A. and Ms. Yasmin Ajani, F.C.A. for Appellant.
Dr. Nauman Ikram, D.R. for Respondent.
ORDER
S.A. MINAM JAFRI (ACCOUNTANT MEMBER).---Appeal has been tiled at the instance of assessee a registered Modaraba under Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 as a Public Listed Modaraba deriving income from leased rentals, profit on Modaraba and Musharika Finance, profit on sale of investments, profit on portfolio management and bank deposits, income from dividend, income from end fees, and documentation charges, etc.
2. In the appeal, appellant has challenged CIT(Appeals) order setting aside, (1) Disallowance of. 100% of the amalgamation expenses claimed of Rs. 1,308,301 and (2) Levy of Minimum Tax under section 80D of Rs.160,610 as incorrect and invalid.
3. Divergent view of both the sides were heard and the relevant records of the case were perused.
4. On the first ground of disallowance of amalgamation expenses, A.R. has contended that three independent Modarabas, namely First Prudential Modaraba, Second Prudential Modaraba and Third Prudential Modaraba were floated by the same management company, Prudential Capital Management Limited and were independently registered under Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 and were in operation since last many years. However, during the year under appeal, Second and Third Prudential Modarabas have been merged and amalgamated into the appellant Messrs First Prudential Modaraba as approved by the Modaraba Certificate holders; Registrar Modaraba and Lahore High Court with effect from 1st July, 2001 inter-alia, with a view to improve operational efficiency thereby contributing to profitability through reduction in administrative cost and also elimination of maintenance of separate accounts records for business operation, legal, administrative, secretarial and other records under the various laws resulting in duplication of work and higher cost.
5. It is observed that full details of amalgamation expenses were provided to the Taxation Officer, who has disallowed for the only reason that such expenses are in the nature of preliminary/incorporation expenses and therefore, not admissible. CIT(Appeals) has set aside the issue for re-adjudication.
6. It is contended by the ARs of the appellant that admittedly all three Modarabas were in operation since long and during the year, two Modarabas have been merged in the appellant and therefore, the amalgamation expenses have been borne by the appellant as per the approved scheme of amalgamation by all the concerned authorities, including Registrar Modaraba and the High Court. Learned A.R. exhorted that there is no question of expenses being incorporation expenses or preliminary expenses and these expenses are incurred wholly and exclusively for business reasons and therefore, admissible business expenditure under section 23(1)(xviii) of the repealed Income Tax Ordinance, 1979.
7. In this respect, AR has also cited reported case of Indian Supreme Court 1997 PTD 390 wherein it is held that the expenditure incurred towards profession charges or the solicitors' firm for the services rendered in connection with the amalgamation was in the course of carrying on the assessee's business and therefore, was admissible deduction as a revenue expenditure.
8. On the second ground of appeal, it is contended that minimum Tax under section 80D at 0.5% on net receipts/turnover is not leviable in the case of the appellant being a Modaraba, as it is exempt from such 13 levy under clause (32F) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979 and CIT(Appeals) erred in setting aside this issue instead of giving direct relief on point of law.
9. Learned D.R. has supported the Taxation Officer's order on disallowance of amalgamation expenses and its setting aside by CIT (Appeals). On the second ground of incorrect levy of minimum tax under section 80D, he has conceded the entitlement of exemption to a Modaraba under the Second Schedule of repealed Ordinance.
10. On the first ground of disallowance of amalgamation expenses, we find asumption in the plea taken up by the learned A.Rs of the appellant that these expenses are not for incorporation or formation of any new entity, but are for merger/amalgamation of already operational three Modarabas for business reasons and therefore, cannot be held as capital expenditure or preliminary expenditure and which cannot be capitalized. They have supported their contention by above cited case of Indian Supreme Court. No supporting argument or documentation could be referred on behalf of Department that the said expenditure claim is not admissible under section 23(1)(xviii) of the repealed Ordinance or so.
In the circumstances we derive guidance from Doctrine of `Nihil Dicit' which is well established in jurisprudence and is attracted in the instant situation. Ergo accordingly, we vacate setting aside directive of CIT (Appeals) and considering quite essential and distinct happenings of this case we hereby direct to allow such expenses as revenue admissible deduction.
11. On the second ground for incorrect levy of minimum tax under section 80D we direct deletion of such levy, as admittedly appellant is exempt from such levy under clause (32F) of Part-IV of the Second Schedule.
The above appeal is disposed off as indicated above.
C.M.A./210/Tax (Trib.)Order accordingl