VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 800 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 30, 31, 80CC, 143-B, 50(5A) & 62---Income Tax Rules, 1982, R.190(1)---C.B.R. Circular No.14 of 1992, dated 1-7-1992---Income from other sources---Assessee an exporter---Interest income---Taxation---Assessee company contended that it was not liable to pay tax separately on any amount received from bank as interest as income covered under S.80CC of the Income Tax Ordinance, 1979 was not confined to export receipts only, but the entire income was relating to export and assessee was not obliged to file separate returns in respect of such income---Validity---Orders were set aside by the Appellate Tribunal with the directions to ascertain, whether the amount claimed as interest income was purely from the export business and had been deposited regarding transactions related to export excegencies---If it was established that the amounts deposited in the banks were purely due to the export excegencies, then that could not be assessed under S.30 of the Income Tax Ordinance, 1979 as "Income From Other Sources"---Otherwise, if the amounts deposited in the bank were only to earn interest income, then that will be assessed under S.30 of the Income Tax Ordinance, 1979---Order of First Appellate Authority was vacated and assessments were set aside to be made in accordance with such directions.

CIT v. National Newsprint and Paper Mills Limited (1978) 114 ITR 388; Punjab Cooperative Bank Limited v. CIT (1940) 8 ITR 635 (Privy Council); CIT v. Vikram Cotton Mills (sic) ITR 592 (SC) (sic) and CIT v. Ganeshdas Sreeram 180 ITR 397 ref.

PLD 1962 SC 128; 2002 PTD (Trib.) 107; 1999 PTD (Trib.) 708 and 2003 PTD (Trib.) 322 rel.

Mrs. Sabiha Mujahid, D.R. for Appellant.

Rizwan Arshad for Respondent.

ORDER

Through these five appeals, the appellant Department has objected the consolidated impugned order of the learned CIT(A), dated . 20-4-2006 for the assessment years 1997-98 to 2001-2002 cancelling the assessments finalized under section 62 of the repealed Income Tax Ordinance, 1979.

The assessee, in this case, is a Private Limited Company and is manufacturer-cum-exporter of readymade garments. For the year under review, statements under section 143-B of the repealed Ordinance, 1979 were filed on due date declaring income assessable under section, 8000 of the repealed Ordinance, 1979. Consequently, on June 17, 2003, returns of total income on Form IT-II prescribed under Rule 190(1) was filed declaring income from other sources as under:--

The Assessing Officer issued notice under section 61 and in response to that notice, it was pleaded on behalf of the assessee that returns have been filed under Income Tax Ordinance, 2001, therefore, notice under section 61 of the repealed Ordinance, 1979 is without any legal force. But later on, the assessee changed its stance contending that returns were not due under the law and the same are infructuous and stand withdrawn, but the Assessing Officer rejected the contention of the assessee with the observation that returns were filed on prescribed form IT-11 issued under Rule 190(1) of the Income Tax Rules, 1982 and the title of the printed return is "Form of Return of Income Under the Income Tax Ordinance, 1979". Against this treatment of the Assessing Officer, the assessee filed appeal before the learned CIT(A), who has directed to accept the Nil revised income tax return of the assessee and has annulled the assessments made by the Assessing Officer for all the five years under review.

On behalf of the appellant Department, it has been contended that as the assessee has himself declared interest income under the head "Income From Other Sources" (being the profit/interest receipts from bank), which is assessable under section 30, there was no justification for annulling the orders passed by the Taxation Officer in this regard.

On the other hand, on behalf of the assessee, it has been contended that assessee is a Private Limited Company engaged in the manufacture and export of garments and the exports consisted 100% of the turnover of the assessee and the assessee has filed statement under section 143B of the repealed Ordinance, 1979. It is, however, admitted by the learned counsel for the assessee that on June 17, 2003, returns were filed declaring income being profit/interest receipts from bank under the head "Income From other sources", due to mistake of the learned counsel, which was later on substituted through revised returns on 29-6-2005 declaring nil income for each year on the grounds that firstly, the profits/interest income, is incidental to the export business covered by presumptive tax regime under section 8000 of the repealed Ordinance, 1979 and alternatively, the corresponding expenses and deductions admissible under section 31 of the Ordinance exceeded the amounts of profit/interest received from the bank in each year. It has been contended that Taxation Officer has not accepted the aforesaid revised returns. The learned counsel for the assessee has contended that entire business of the assessee company is to manufacture and export of garments, but during the course of business, the companies liquid assets fall short of the requirements of the business and it has to borrow money from the bank. Likewise, sometimes the companies cash requirements are less than the cash available with it and these funds remain deposited in the bank. During the period, the funds are borrowed from the bank, the bank charges interest and during the period, the company has credit balance in the bank and the bank pays interest to the company. It has been contended that the amount of interest' paid far exceeds the interest received during each of the four years. According to the learned counsel, in its accounts, the company had rightly netted off the interest paid and interest received. He has contended that even if, the amount of interest paid, the resulting income is not taxable nor as income chargeable to tax as income from other sources, but as part of the business income. The learned counsel in this regard has referred section 8000of the repealed Ordinance, 1979, paragraph (9) of C.B.R's Circular No.14 of 1992, dated July 1, 1992 and the following cases from the Indian Jurisdiction:--

(1) CIT v. National Newsprint and Paper Mills Limited reported as (1978) 114 ITR 388.

(2) Punjab Cooperative Bank Limited v. CIT reported as (1940) 8 ITR 635 (Privy Council).

(3) CIT v. Vikram Cotton Mills reported as (sic) ITR 592 (SC) (sic) 4. CIT v. Ganeshdas Sreeram reported as 180 ITR 397:

The learned counsel has contended that bank profit/interest received by the bank in the course of its exports business is squarely covered by presumptive tax regime under _ section 80CC and is not chargeable to tax separately under section 30 of the repealed Ordinance, 1979 as "Income From Other Sources". The learned counsel has contended that income covered under section 8000 is not confined to the export receipts only, but the entire income is relating to export. He has contended that income from export was brought under the presumptive tax regime through Finance Act, 1992 by insertion of sections 50(5A) and 8000 of the repealed Ordinance, 1979. He has contended that in the conduct of export business being recovers export rebates from the Custom Department, which are in addition to what is received is export proceedings, but-these receipts are not separately taxed but are treated as part of export business for which tax has been paid under section 50(5A). He has therefore contended that the assessee company was not liable to pay tax separately on any amount received from the bank as interest and the company was not obliged to file separate returns in respect of such income and the directions made by the learned CIT(A) are, therefore, in accordance with law and require no interference.

We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A), the assessment order, the relevant provisions of law and the case laws from both the sides.

We have found that in this case the assessee himself has declared interest income by filing returns of income. Under section 30 of the repealed Ordinance, 1979, "Income of every kind which may be included in the total income of an assessee under this Ordinance shall be chargeable under the head "Income From Other Sources", if it is not included in its total income under any other head" and under subsection (2) of section 30, it has been specifically provided that following incomes shall, save as otherwise provided in the Ordinance, be chargeable under head "Income From Other sources", namely:--

(a) Dividend;

(b) Interest, royalties an fees for technical services;

(c) Ground rent;

(d) Income from the hire of machinery, plant or furniture belonging to the assessee and also of buildings belonging to him of the letting of the building is inseparable from the letting of the said machinery, plant or furniture; and

(e) Any income to which subsection (12) of section 12 or section 13 applies.

We have further noted that this Tribunal following the decision of the Hon'ble Supreme Court of Pakistan reported as PLD 1962 SC 128 has held in many cases that "Interest income is to be assessed under section 30 and no expenses are liable against interest income In this regard, the decisions of this Tribunal reported as 2002 PTD (Trib.) 107, 1999 PTD (Trib.) 708 and 2003 PTD (Trib.) 322 can be referred.

In view of this settled preposition of law, we find no justification for annulling the order passed by the Taxation Officer through the impugned order by the learned CIT(A). The impugned order of the learned CIT(A) in this regard is, therefore, vacated and the orders for all the five years under review i.e. 1997-98 to 2001-2002 are set aside with the directions to ascertain, whether the amount claimed as interest income is purely from the export business and has been deposited regarding transactions related to export excegencies etc. If it is established that the amounts deposited in the banks were purely due to the export excegenices, then that cannot be assessed under section 30 as "Income From Other Sources", but otherwise if the amounts deposited the bank are only to earn interest income, then that will be assessed under section 30 of the repealed Ordinance, 1979. The impugned order of the learned CIT(A) is vacated and the assessments for all the five years are set aside to be made in accordance with the above direction.

All the five appeals filed by the Department are allowed to the extent and in the manner as indicated above.

C.M.A./23/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Order accordingly.