VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1737 (2008)

Income Tax Ordinance (XLIX of 2001)---

----S.21(k) & Fourth Sched. Rr. 2 & 3----Income Tax Ordinance (XXXI of 1979), Fourth Sched. Rr. 2 & 3---Deductions not allowed--Life Insurance Company---Payment of excess perquisites---Addition made by the Taxation Officer was deleted by the First Appellate Authority---Validity---Amount of allowance exceeding fifty per cent of salary was to be disallowed, however, under Rr.2 & 3 of the Fourth Schedule of the Income Tax Ordinance, 1979 this was made allowable in respect of Life Insurance Corporation/employees---Such was not the situation in Rr.2 & 3 of the Fourth Schedule of the Income Tax Ordinance, 2001---Substantial change occurred in the scope of excessive perquisite as mentioned in Rr.2 & 3 of the Fourth Schedule of the Income Tax Ordinance, 2001 regarding Life Insurance business---First Appellate Authority had not appreciated the change in the Income Tax Ordinance, 2001 and had based his finding on the Income Tax Ordinance, 1979---Taxation Officer was correct as far as taxing the excess perquisite under S.21K of the Income Tax Ordinance, 2001 was concerned---Order of First Appellate Authority was modified by the Appellate Tribunal and findings of Taxation Officer were upheld.

I.T.A. No.1171 to 1175/KB of 2000-2001; Order I.T.A. No.162/KB of 2002; I.T.A. No.558 to 560/KB of 2003 and ITA No.187/KB to 1190/KB of 1998-98 distinguished.

Farrukh Ansari, D.R. for Appellant.

Muhammad Farid for Respondent.

ORDER

The department has filed this appeal against the order of CIT(A) on a solitary ground which is reproduced as under:--

"That the learned CIT(A) has erred in deleting the addition of Rs.100,599,000 made under section 21(k) of the Income Tax Ordinance, 2001

2. Brief facts of the case are that the at time of framing the original assessment order the Taxation Officer, after following legal procedure and issuing notices made certain additions in the taxable income of the taxpayer including additions of excess perquisite under the then section 21(k) of the Income Tax Ordinance, 2001. The relevant portion of Taxation Officer's observation and arguments by the taxpayer are reproduced as under:

"(4) That in this case the Taxation Officer has taxed so-called excess perquisites under section 21(k) of the Income Tax Ordinance, 2001 which is not applicable. In the case of Life Insurance Company as held by the learned Income Tax Appellate Tribunal in this case for the assessment years 1993-94 to 1997-98 vide the consolidated Appellate Order I.T.A. No.1171 to 1175/KB of 2000-2001, order I.T.A. No.162/KB of 2002 for the assessment year.

1998-99 order I.T.A. No.558 to 560/KB of 2003 for the assessment year 1999-2000 to 2001-2002 and Commissioner of Income Tax Appeal-I, Order No.40, dated 21-7-2004 for the assessment year 2002-2003.

Hence the Taxation Officer was wrong in adding the excess perquisite of Rs.100,599,000 to the total income of assessee and charging tax on that. His order may kindly be cancelled.

That appellant craves leave to, add, alter or amend any ground of appeal before or at the time of hearing of appeal.

I have gone through, the grounds of appeal and discussed the case with the A.R. of the assessee. I also consulted the old record and have come to the following conclusions:

(1) As far as the ground No. 1 is concerned this is a formal ground.

(2) As far as the grounds Nos.2 and 3 are concerned I do not agree with the arguments of the A. R. The section 177 gives full powers to the Commissioner of Income Tax to select any case including life insurance company for total audit. Hence these grounds are rejected.

(3) Regarding ground No. 4 since the appellant is allowed relief from the payment of tax on excess perquisites by the learned Income Tax Appellate Tribunal from the assessment years 1993-94 to 2001-2002 and by my predecessor for the assessment year 2002-2003 it has a long history of exemption from tax on excess perquisites being a Life Insurance Company."

3. The Taxation Officer accordingly made an addition of Rs.100,599,000 in taxable income of taxpayer. The appellant aggrieved against this treatment filed an appeal before the Commissioner of Income Tax (Appeals) and the CIT(A) deleted the additions made by Taxation Officer with the following observations:

(1) EXCESS PERQUISITES UNDER SECTION 21(K)

The taxpayer has not offered for tax any excess perquisite under section 21(k) despite the fact that huge salaries and other benefits of Rs.913,775(M) have been paid by the Corporation to the Director, Executive and Employees of the Company.

Accordingly, through the IDR the taxpayer was requested to furnish employee-wise working and statement of excess perquisites under 'section 21(k). It may be mentioned here that while working addition under section 21(k) all benefits and , perquisites are to be considered and accounted for. For convenience few examples are given herewith viz., expanses on provisions of motor vehicle which include running and maintenance, drivers salary etc., expenses incurred on provision of domestic servant, domestic appliances, free air passages, expenses on medical facility such as re-imbursement of expenses, provision of consultancy services or medical insurance etc., expenses on concessional loans, whether food is provided to employees by the company, if so, expenses on them would also be included.

Moreover, as per Note Nos.9 and 10 of the accounts the Corporation has advanced loan of Rs.147,098(M) and Rs.67,675(M) respectively to the employee of the company without charging any interest. Such a benefit is a perquisite as held by the learned ITAT in the case of Messrs Hong Kong Shanghai Banking Corporation. Accordingly, the taxpayer was requested to explain its position in this regard.

In response to above the taxpayer vide its Letter No.NU/AUDIT/TAX/2003, dated 15-4-2005 has furnished the following' reply/ exemption.

"We wish to state that the addition of excess perquisites under section 21(K) is not applicable in the case of State Life Insurance Corporation of Pakistan being an insurance company and in this regard their decisions from different benches of Income Tax Appellate Tribunal (I.T.A. No.1171/KB to 1175/KB of 2000-2001, dated 14-5-2002, T.T.A. No.1187/KB to 1190/KB of 1997-98, dated 13-6-2002 and I.T.A. No.162/KB of 2002, dated 15-11-2002 and in one decision from Commissioner of Income Tax (Appeals) 35 to 37, dated 24-2-2003, decisions have been given in favour of the Corporation.

However, we are providing you the employee-wise working and statement of excess perquisite as required by you containing 330 pages. Total amount of excess perquisites for all year ending December, 2002 is Rs.100,599(M) (Annexure-l-A).

4. At the time of hearing of appeal Dr. Farrukh Ansari appeared on behalf of the department and invited the attention of the Court to the changes brought in rules 2 and 3 of the 4th Schedule of the Income Tax Ordinance, 2001 regarding the Life Insurance Business. The D.R. has presented comparative provisions under these rules in the Income Tax Ordinance, 1979 and the Income Tax Ordinance, 2001 which are reproduced as under:--

5. The D.R. has therefore, argued that in view of the visible change in the rules the CIT(A) was not justified to delete the additions made by the Taxation Officer under section 21-K of Income Tax Ordinance, 2001. It would be appropriate here to reproduce the then section 21-K of the Income Tax Ordinance, 2001 which reads as under:

"(k) any expenditure paid or payable by the employer on the provision of perquisites and allowances to an employee where the sum of the value of the perquisites computed under section 13 and the amount of the allowances exceeds fifty per cent of the employee's salary for a tax year (excluding the value of the perquisites at amount of the allowances);"

The perusal of this section reveals that any amount of the allowance exceeding fifty per cent of salary was to be disallowed. However, under rules 2 and 3 of the Fourth Schedule of Income Tax Ordinance, 1979 this was made allowable in respect of Life Insurance Corporation/ Employees. This is not the situation in rules 2 and 3 of the Fourth Schedule of Income Tax Ordinance, 2001.

The authorized representative of the taxpayer Mr. Muhammad Farid has however, contested the position taken by the Taxation Officer.

6. We have heard the parties and examined the comparative provisions regarding perquisites as mentioned in the Income Tax Ordinance, 1979 and fir Income Tax Ordinance, 2001. There is substantial change in the scope of excessive perquisite as mentioned in rules 2 and 3 of Fourth Schedule of Income Tax Ordinance, 2001 regarding Life Insurance Business. The learned CIT(A), seems to have not appreciated the change brought in by the Income Tax Ordinance, 2001 and has based his finding on the Income Tax Ordinance, 1979. In this view of the matter we are of the opinion that the Taxation Officer and department are correct as far as taxing the excess perquisite under section. 21-K of the Income Tax Ordinance, 2001. The order of the CIT(A) to this extent is therefore, amended and findings of Taxation Officer are upheld. The appeal succeeds to the extent discussed above.

C.M.A./58/Tax (Trib.)Order accordingly.