VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2166 (2009)

2009 P T D (Trib.) 2166

[Income-tax Appellate Tribunal Pakistan]

Before Javaid Masood Tahir Bhatti, Judicial Member and Khalid Siddiqui, Accountant Member

I.T.As. Nos. 360/KB, 361/KB, 1326/KB of 2003 and 1143/KB of 2004, decided on 16/07/2009.

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

----Ss.79 & 62---Income from transactions with non-residents---Addition was proposed on the ground that raw materials imported from foreign' principal at a sum higher than the price at which comparable raw materials were being imported by other companies---Assessee objected that no supporting evidence to substantiate the addition proposed had been given in order to give a satisfactory reply---While the assessing office informed that material on which he has proposed the addition had already been supplied to the assessee and addition was made---Assessee contended that it was incumbent upon an officer to confront the assessee in respect of the materials on the basis of which adverse inference was being drawn---Principles of natural justice had to be applied in strict sense and principle of 'audi alteram partem' had to be applied in every case before drawing an adverse inference---Assessing officer having passed the orders without following the principles of law his orders were liable to be vacated---Department submitted that as the document (LCs) were confidential those were not confronted to the assessee---Validity---Assertion of department that as the material was confidential in nature that is why the same was not confronted to the assessee was not borne out from the order---Assessing officer had stated that he had enclosed the same materials along with the notices issued under S.62 of the Income Tax Ordinance, 1979, which the assessee had vehemently denied to have received---Basic controversy between the department and the assessee was with regard to confronting of the materials on the basis of which the assessing officer had drawn adverse inference against the assessee---Before resolving the issue, it would be very difficult to proceed any further as both the parties had made divergent submissions in this regard---It would be in fairness of things if the appeals were remanded to assessing officer to confront the entire materials to the assessees and give them . sufficient opportunity to make their submissions/arguments---Assessing officer while confronting the materials and making the additions under S.79 of the Income Tax Ordinance, 1979 if any, should keep in view the decision given by the High Court and Appellate Tribunal.

2007 PTD 1946 and I.T.A. No.573/KB of 1998/99 ref.

(b) Income Tax---

----Exchange loss---Disallowance with the reason that same was notional---Assessee contended that entire exchange loss was not notional---It was incumbent upon the assessee to prepare its accounts in accordance with the International Accounting Standards (IAS) and as per IAS, transactions in foreign currency account had to be presented in Pak Rupees---Assessee had declared in foreign currency liability in Pak rupees and due to exchange fluctuations had incurred certain loss which was an allowable expenditure---Validity---Facts had not been scrutinized properly to find out as to what portion of loss was notional and what portion was an actual loss---Assessments were remanded on the issue for de novo proceedings with the direction that department should examine the accounts of the assessee to ascertain the nature of exchange loss and if it was found that the exchange loss was an actual, the same, should be allowed as business expenditure and the assessee should be provided due opportunity to explain the case and furnish necessary details.

1993 PTD (Trib.) 908; 60 Tax 25(sic); 1986 PTD (Trib.) 105; 2006 PTD (Trib.) 2737 and 305 ITR 75 ref.

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

----Ss.24(i) & 23---Deductions not admissible---'Excess perquisites'---Addition on the ground that interest free loans had been advanced to directors/employees which fell under the definition of excess perquisites---Validity---Matter required further probe as to whether the assessee had claimed any expenditure against the advance/loan given to its executives or employees under S.23 of the Income Tax Ordinance, 1979---If it was proved with evidence that claim was made by the assessee-company then addition may be made, however if it was proved that no such claim was made then obviously no addition would be warranted under S.24(i) of the Income Tax Ordinance, 1979-Proper opportunity of hearing be provided to the assessee for making out the case.

183 ITR 103; 1979 PTD (Trib.) 24; 2005 PTD (Trib.) 2041 and 2000 PTD 1292 ref.

(d) Income Tax Ordinance "(XLIX of 2001)---

----S.2(29)---Constitution of Pakistan (1973), Fourth Schedule, Part-I of the Federal Legislature list, Entry 47---`Income'---Addition on account of `remission of short terms foreign currency loan' on the ground that remission of loan was a benefit and was liable to be taxed as an extra-ordinary gain to the company---Assessee contended that amount represents `waiver' of short term loan by the principal company to improve the financial position of the company which was neither assessed as trading liability of allowed as an expense or loss in the previous assessment years---Department submitted that there was a close connection between the principal company and the assessee---Assessee had been remitting secret profits by way of transfer pricing to the principal company and in turn the principal company had waived the loans advance to the Pakistani company; there was prima facie collusion between the, two---Department was fully justified in adding the said amount as an extraordinary gain to the company---Validity---Such issue required thorough investigation as to whether the said amount fell under the term `income' or not and whether the amount remitted was a gain in the hands of the company or was advanced as a financial help to the company to reduce its huge losses---Taxation officer while making the assessment should carry out a detailed inquiry as to whether the loan waived was voluntary and without any obligation on the lender and that the company neither had a right nor any claim against it---Taxation officer should also examine the relation between the principal company and the company whether it was that of parent and its subsidiary or whether there was business relationship between them---Taxation officer while re-assessing said issue should provide reasonable opportunity of bearing heard to the assessee.

Black's Law Dictionary; Ballentine's Law Dictionary; A.R 1932 PC 138; 1983 PTD 30; 261 ITR 501; 13a Tax Mean 301 and 1987 PTD 482 ref.

60 ITR 253; 90 Tax 17 and 74 Tax 1 not relevant.

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

----Ss.31 & 30---Deduction---Income from other sources---Addition of non-allocation of expenses against interest income---Assessee contended that Assessing Officer treated the amount received as interest income assessable as income from other sources and not as business income of the assessee/appellant---Assessing officer did not allocate expense against this income---Department contended that as the assessee had failed to point out the expenses relating to the interest income earned by them, department was justified not allowing any expenses against the said interest income---Validity---When any income was assessed then its related expenditure had to be allowed---When the said income was assessed under S.30 of the Income Tax Ordinance, 1979 then as per provisions of S.31 of the Income Tax Ordinance, 1979 its related expenses had to be allowed---Case was remanded with the instructions to require the assessee to submit the expenditure incurred in relation to earning of the said income.

1990 PTD 731 ref.

(f) Income Tax---

----Loss on amalgamation of Companies---Disallowance of---Assessing Officer disallowed the loss of subsidiary company which was amalgamated with the assessee company, with the observation that the said loss was capital in nature---Validity---Loss claimed by the assessee was nothing but accounting loss which had rightly been disallowed as a capital loss---Appeal was dismissed by the Appellate Tribunal on the issue.

2007 PTD (Trib.) 1885 distinguished.

Irfan Saadat for Appellant.

Rehmatullah Wazir and Farrukh Ansari, D.Rs. for Respondent.

ORDER

These four appeals related to the above mentioned assessment years have been filed by the assessee against the orders passed by the learned CIT(A) dated 30-12-2002, 17-6-2003 and 9-8-2004. The grounds of appeal taken in each year are summarized as under:--

I.T.A. No.360/KB of 2003

Assessment year 1999-2000.

(1) That the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in confirming the action of the learned Deputy Commissioner of Income Tax (DCIT) who made an addition of Rs.65,382,721 under section 79 of the Income Tax Ordinance, 1979 (the Ordinance) to the appellant's income. It is contended that the action is arbitrary, contrary .to law and facts of the case.

(2) That the learned CIT(A) has erred in confirming the action of the learned DCIT who omitted to take cognizance of the fact that section 79 of the Ordinance has been substituted by the Finance Act, 1992 and the implications of the substituted provision does not warrant an addition in the manner perpetrated by the learned CIT(A). The learned CIT(A) has failed to establish absence of arm's length principle in the purchases of your appellant.

(3) That the learned CIT(A) has erred in confirming the action of the learned DCIT who observed that the appellant purchased raw materials from non-resident parent company at higher rates than by other pharmaceutical companies in Pakistan for similar raw materials of same quality. The observation of the learned CIT(A) is arbitrary, contrary to law and facts of the case.

(4) That the learned CIT(A) has erred in confirming the action of the learned DCIT who made an addition of Rs.60,300,000 on account of remission of short term foreign currency loan. It is 'contended that the action of the learned CIT(A) is arbitrary, contrary to law and facts of the case.

(5) That the learned CIT(A) has erred in confirming the action of the learned DCIT who disallowed exchange loss of Rs.40,363,000. It is contended that the action is arbitrary, contrary to law and facts of the case.

(6) That the learned CIT has erred in confirming the action of the learned DCIT who made an addition of Rs.408,850 on account of excess perquisites under section 24(1) of the Ordinance. It is contended that the action is arbitrary, contrary to law and facts of the case,

(7) Your appellant craves permission to add to, amend, alter or substitute the above grounds of appeal.

I.T.A. No.361/KB of 2003

Assessment year, 2000-2001.

(1) That the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in confirming the action of the learned Deputy Commissioner of Income Tax (DCIT) who made an addition of Rs.43,370,674 under section 79 of the Income Tax Ordinance, 1979 (the Ordinance) to- the appellant's income. It is contended that the action is arbitrary, contrary to law and facts of the case..

(2) That the learned CIT(A) has erred in confirming the action of the learned DCIT who omitted to take cognizance of the fact that section 79 of the Ordinance has been substituted by the Finance Act, 1992 and the implications of the substituted provision does not warrant an addition in the manner perpetrated by the learned CIT(A). The learned CIT(A) has failed to establish absence of arm's length principle, in the purchases of your appellant.

(3) That the learned CIT(A) has erred in confirming the action of the learned DCIT who observed that the appellant purchased raw materials from non-resident parent company at higher rates that by other pharmaceutical companies in Pakistan for similar raw materials of same quality. The observation of the learned CIT(A) is based on assumption and not on factual position.

(4) That the learned CIT(A) has erred in confirming the action of the learned DCIT who disallowed exchange loss of Rs.16,411,000. It is contended that the action is arbitrary, contrary to law and facts of the case.

(5) That the learned CIT(A) has erred in confirming the action of the learned DCIT who made an addition of Rs.766,190 on account of excess perquisites under section 24(i) of the Ordinance. It is contended that the action is arbitrary, contrary to law and facts of the case.

(6) Your appellant craves permission to add to, amend, alter or substitute the above grounds of appeal.

I.T.A. No.326/KB of 2003

Assessment year, 2001-2002.

(1) That the learned CIT(A) has erred in confirming the action of the T.O. who made an addition of Rs.67,398,596 under section 79 of the Income Tax Ordinance, 1979 (the repealed Ordinance) to the appellant's income. It is contended that the action of the learned T.O. is arbitrary, contrary to law and facts of the case.

(2) That the learned CIT(A) has erred in confirming the action of the learned T.O. who omitted to take cognizance of the fact that section 79 of the repealed .Ordinance has been substituted provision does not warrant an addition in the manner perpetrated by the learned T,O. it is contended that the action of the learned T.O. is arbitrary, contrary to law and facts of the case.

(3) That the learned CIT(A) has erred in confirming the action of the learned T.O. who observed that the appellant purchased raw materials from non-resident parent company at higher rates than by other pharmaceutical companies in Pakistan for similar raw materials of same quality. The observation of the learned CIT(A) is based on assumption and not on factual position.

(4) That the learned CIT(A) has erred in confirming the action of the learned T.O. who disallowed exchange loss of Rs. 120,604,000. It is contended that the action is arbitrary and without any lawful basis.

(5) That the learned CIT(A) has erred in confirming the action of the learned T.O. who made an addition of Rs.77,700 on account of excess perquisites. It is contended that the action is arbitrary and without any lawful basis.

(6) That the learned CIT(A) has erred in confirming the action of the learned T.O. not allocating profit and loss expenses against interest income of Rs.4,044,000. It is contended that the action is arbitrary and without any lawful basis.

(7) That the learned CIT(A) has erred in confirming the action of the learned T.O. who disallowed sample cost of Rs.8,679,000. It is contended that the action is arbitrary and without any lawful basis.

(8) That the learned CIT(A) has erred in confirming the action of the learned T.O. who disallowed provision for slow moving stock of Rs.11',101,000. It is contended that the action is arbitrary and. without any lawful basis.

(9) Your appellant craves permission to add, to amend, alter or substitute the above grounds of appeal.

I.T.A. No.1143/KB of 2004

Assessment year 2002-2003.

(1) That the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred in confirming the action of the learned Taxation Officer (T.O) who made an addition of Rs.98,717,390 under section 79 of the Income Tax Ordinance, 1979 (the repealed Ordinance) to the appellants' income. It is contended that the action is arbitrary, contrary to law and facts of the case.

(2) That the learned CIT(A) has erred in confirming the action of the learned T.O. who omitted to take cognizance of the fact that section 79 of the Ordinance has been substituted by the Finance Act, 1992 and the implications of the substituted provision does not warrant an addition in the manner perpetrated by the learned CIT(A). The learned CIT(A) has failed to establish absence of arm's length principle in the purchases of your appellant.

(3) That the learned CIT(A) has erred in confirming the action of the learned T.O. who observed that the appellant purchased raw materials from non-resident parent company at higher rates than by the pharmaceutical companies in Pakistan for similar raw materials of same quality. The observation of the learned CIT(A) is based on assumption and not on factual position.

(4) That the learned CIT(A) has erred in confirming the action of the learned T.O. who disallowed exchange, loss of Rs.49,833,000. It is contended that the action is arbitrary, contrary to law and facts of the case.

(5) That the learned CIT(A) has erred in 'confirming the action of the learned T.O. who disallowed loss on amalgamation of Rs.10,706,000. It. is contended that the action is arbitrary, contrary to law and facts of the case.

(6) That the learned CIT(A) has erred in confirming the action of the learned T.O. who made an addition of Rs.486,360 on account of excess perquisites under section 24(i) of the Ordinance. It is contended that the action is arbitrary, contrary to law and facts of the case.

(7) That the learned CIT(A) has erred in confirming the action of the learned T.O. who has not allocated profit and loss expenses against interest income of Rs.633,000. It is contended that the action is arbitrary, contrary to law and facts of the case.

(8) That the learned CIT(A) has erred in confirming the action of the learned T.O. who disallowed provision of doubtful deposits/ receivables of Rs.2,171,000. It, is contended that the action is arbitrary, contrary to law and facts of the case.

(9) Your appellant craves permission to add,, to amend, alter or substitute the above grounds of appeal on or before the hearing.

2. Mr. Irfan Saddat Khan Advocate appeared on behalf of the assessee while the Department was represented \ by Mr. Rehmatullah Wazir and Dr. Farrukh Ansari.

3. Brief facts of the case are that assessee is an unlisted public limited company engaged in the manufacturing and selling of pharmaceutical products. At the very outset the learned A.R. submitted that they do not press the grounds Nos.7 and 8 pertaining to assessment years, 2001-2002 and ground No.3 relating to assessment 2002-2003. Hence the appeals as far as the above grounds are concerned are hereby dismissed.

4. As in these appeals common grounds have been taken hence these are adjudicated in the following terms.

5. The first ground relates to the addition made under section 79 of the repealed Ordinance. The learned A.R. submitted that the DCIT while making the assessment in respect of the above mentioned years added under section 79 Rs.65,382,221, Rs.43,370,671, Rs.67,398,596 and Rs.98,717,390 respectively. The main reason for the said addition being that the assessee has purchased new materials from its principal at a higher price and in the opinion of the Department has thus benefited its principal to the extent of the above amounts. The learned CIT(A) has affirmed the view of DCIT. The DCIT while making the above additions under section 79 of the repealed Ordinance has elaborately discussed the issue in the order of the Assessment year, 1999-2000 whereas while passing the orders for-the subsequent assessment year has mentioned that as `elaborate' discussion' has already been made by him in the order of assessment year 1999-2000 hence it would not be worth to discuss the issue any further.

6. The learned A.R. contested that .the additions made under section 79 of the Ordinance, 79(R) by the DCIT is wholly illegal and uncalled for as the said addition has been made by violating the term `audi alterm partem. The assessment proceedings were initiated by the DCIT by issuing a notice under section 62 of the repealed Ordinance dated 8-3-2001 whereby the assessee was confronted that as they have imported certain raw materials from their foreign principal at a sum higher than the price at which comparable raw materials are being imported by other companies hence necessary additions will be made to their income under the provisions of section 79 of the repealed Ordinance. In response to the said notice the assessee vide their letter dated 14-3-2001 raised preliminary objection that no supporting evidence to substantiate the additions proposed by the DCIT has been given to them in order to enable them to give a satisfactory reply. The DCIT then vide his letter dated 15-3-2001 reiterated his previous stand and also informed that the material on which he has proposed the addition has already been supplied to the assessee (Page 4 of Order). The assessee once again vide letter dated 30-3-2001 requested for providing the necessary evidence to enable him to give a reasonable and logical reply as according to the learned A.R. no such evidence was provided by the DCIT.

7. The learned A.R. further explained that the DCIT did not pay any heed to the specific request made by the assessee to provide him the necessary evidence in order to enable them to give a reasonable and logical reply rather the DCIT bent upon by saying that these evidences have already been provided. It was further submitted that in the written arguments submitted before the learned CIT(A) also the assessee has reiterated this fact but he has also not considered this basic arguments advanced by the assessee. It was contended that it is a trite law that it is incumbent upon an officer to confront the assessee in respect of the materials on the basis of which adverse inference is being' drawn by him. It was also argued that the superior Courts have time and again in their various judgments have held that-the principle of natural justice has to be applied in strict sense and the principle of `audi alterm paters' has to be applied in very case before drawing an adverse inference against the said person.

It was finally submitted by the learned A.R. that as the DCIT has passed the orders without following the principle of law his orders are liable to be vacated.

8. The learned D.Rs. while defending the order passed by the two officers below have not only reiterated the reasoning on the basis of which additions were made by the department but also invited our, attention to a. decision given by the Honourable High Court reported as 2007 PTD 1946 wherein according to them the issue of addition under section 79 of the repealed Ordinance' stands settled in their favour.

9. The learned D.R. further submitted that as the document (LCs') were confidential that is why these were not confronted to the assessee.

10. The learned ARs while making their rebuttal submitted that the decision relied upon by the D.Rs. is distinguishable as in this case a question was raised with regard to the non-supply of the material but while deciding the case the Honourable High Court observed that as the A.R. has not argued this point at the lower stages hence this question does not arise out of the order of ITAT. But in the instant appeals since the issuance of first notice under section 62 by the DCIT has been submitted by the appellant that the materials on the basis of which alleged inference is being drawn by the DCIT was never confronted to the assessee. The learned A.R. further submitted that the learned ITAT in the decision ITA/573/KB/1998-1999 has set out certain principles for the Department to comply before making any addition under 'section 79 of the Repealed Ordinance. It was contended that no appeal against the said order has been filed by the department and this order has attained finality. It was also submitted that the learned ITAT has followed this decision in a number of subsequent decisions given in the case of other pharmaceutical companies.

11. Apropos the merit of the appeal is concerned it was submitted by the learned AR that the DCIT has not compared `like with like'. The DCIT has considered the new materials used by the assessee company, which is the outcome of research based product with that raw materials. The assessee-company is considered to be the 5th largest research based multinational company of the world and its medicines are considered to be of high standard. It was also submitted that the case laws submitted by the DCIT in the order firstly relates to that provision of Section 79 which moreover, the decisions relied upon by the department in fact goes in favour of the assessee. It was therefore, finally submitted that the additions made by the DCIT in all the above four years may kindly be deleted. The A.R. also submitted that the assertion of the learned DRs that the materials on which the DCIT has relied upon while making the addition under section 79 was confidential that is why the same was not confronted to the assessee is self contradictory as if these documents were confidential in nature then why the DCIT has incorrectly stated at two places in the order that the documents are being enclosed and if these were not confidential then why the learned D.R. have made a categoric statement at the bar that those documents were confidential and that why these were not confronted to the assessee.

12. We have heard both the learned counsel and have also perused the case laws and the decisions cited by both the parties. There have been some divergent statements of facts by both the representatives counsel. The learned A.R. has submitted with vehemence that the materials on which the DCIT has relied upon for making the addition under the relevant provision of law was never confronted, to them in spite of the fact that in the letters written by the A.R. to the Department this aspect was clearly highlighted but as the DCIT has failed to provide company of the materials on the basis of which adverse inference was drawn by the department hence as per the learned A.R, at the very outset the additions are illegal as the same have been made in clear violation of the principle audi alterm paterm. Whereas on the other hand, the learned' D.R. has reiterated the fact that firstly the said material was confronted to the assessee and even though if it is assumed that the same was not confronted was due to the reason that the same was confidential in nature. However, this assertion of the learned D.R. that as the material was confidential -in nature that is why the same was not confronted to the assessee is not borne out of the order for the year, 1999-2000, which is the base order, the DCIT hase stated that he is enclosing the same materials along with the notices issued by him under section 62 of the repealed Ordinance, which the learned A.R. has vehemently denied to have received.

13. In our opinion before adverting to the issue that whether the decision given by the Honourable High Court of Sindh in the case reported as 2007 PTD 1946 is applicable to, the present appeals or not, the basic controversy between the department and the assessee was with regard to confronting of the materials on the basis of which the DCIT has drawn adverse inference against the assessee. Before resolving this issue it would be very difficult to proceed any further as both the parties have made divergent submission in this regard. Hence in our view it would be in fairness of things if the appeals are remanded back to the DCIT to confront the entire materials to the assessee and given them sufficient opportunity to make their submissions/arguments in this regard. The DCIT while confronting the materials and making the additions under section 79 if any, should keep in view the decision given by the Honourable High Court Sindh referred to above and the decision given by the learned ITAT in I.T.A. No.573/KB of 1998/99.

14. The next issue pertains to the claims of exchange loss by the assessee which is also common in all the years. As per A.R. the DCIT disallowed the exchange loss with the reason that it is notional. The learned A.R. submitted that the entire exchange loss was not notional. The A.R. further submitted that it was incumbent upon the assessee to prepare its accounts in accordance with the IAS. As per IAS (International Accounting Standards) transactions in foreign currency account have to be presented in Pak Rupees. The assessee has declared in foreign currency liability in Pak rupee and due to exchange fluctuations has incurred certain loss which is an allowable expenditure. In this regard he placed reliance on the following case laws.

(1) 1993 PTD (Trib.) 908; (2) 60 Tax 25(sic), (3) 1986 PTD (Trib.)105; (4) 2006 PTD (Trib.) 2737 and (5) 305 ITR 75.

He argued that in all above case laws it has been held that devaluation of money or increase in liability on account of difference in exchange rate is an allowable expense.

15. The learned DRs on the other hand have contended that the loss claimed by the assessee is `notional loss' hence the same was rightly disallowed by the department.

16. We have given due consideration to the rival arguments on this point. We are of the opinion that in this case the facts have not been scrutinized properly to find out as to what portion of loss was notional and what portion was an actual loss. We therefore, remand back the assessments on this issue for de novo proceedings for all the years. The department should examine the accounts of the assessee to ascertain the 'nature of exchange loss and if it is found that the exchange loss is an actual, the same should be allowed as business expenditure. The assessee should however be provided due opportunity to explain the case and furnish necessary details.

17. The next issue which is also common in all the years pertains to the additions made by the department on account of excess perquisites. The learned A.R. submitted that the DCIT has made the additions on the ground that interest free loans have been advanced to directors/ employees which fall under the definition of excess perquisites.

18. It was contended by the learned A.R. that the action of the DCIT is totally illegal and uncalled for. In this regard he placed reliance on various decisions which are as under:--

183 ITR 103; 1979 PTD (Trib.)24; 2005 PTD (Trib.) 2041 and 2000 PTD 1292.

19. The learned D.Rs. on their turn supported the order of the DCITs and submitted that granting concessionary and interest fee loans to the directors employees fall under the ambit of section 24(i) of the repealed Ordinance, hence the department rightly added the same in the income of the assessee. The learned D.Rs. also relied on various decisions of the learned ITAT in support of their contention.

20. After having considered the arguments advanced by the learned representative of both the sides and have also perused the various case laws cited in this regard. We have also perused the decision reported as 2006 PTD 1292 wherein under identical circumstances it was held that the benefit will accrued in the hands of employee and not the employer. In our view the matter requires further probe as to whether the assessee has claimed any expenditure against the advance/loan given to its executives or employees under section 23 of the repealed Ordinance. If it is proved with evidence that claim was made by the assessee-company then addition may be made however if it is proved that no such claim was made' then obviously no addition would be warranted under section 24(i) in this regard. A proper opportunity of hearing in this regard however may be provided to the assessee for making out the case.

21. The next issue which relates to the assessment year, 1999-2000 only pertains to the addition on account of `remission of short terms foreign currency loan'. Briefly stated that assessee-company has derived as benefit of remission of 1.2(m) US$ Dollars equivalent to Pak Rs.60,300 (m) as remission of loans by the Principal company to improve the financial health of assessee-company. The DCIT was of the opinion that his remission of loan is a benefit and thus liable to be taxed as an extraordinary gain to the company.

The learned A.R. while explaining, the case submitted that the amount represents `waiver' of short term loan by the principal company to improve the financial position of the company which was neither assessed as trading liability or allowed as an expense or loss in the previous assessment years. The learned A.R. further took the plea that entry 47 in Part-I of the Federal Legislature list as embodied in the 4th Schedule to the Constitution of Pakistan, 1973, empowers the Federal Government to levy tax on income other than on agriculture income.

The learned A.R. stated that the Ordinance defines the terra "income" to mean:--

"2(29) `income' includes any .amount chargeable to tax under the Ordinance, any amount subject to collection or deduction of tax under sections 148, 153, 154 and 156 subsection (5) of section 234, any amount treated as income under any provision of this Ordinance .."

22. The learned A.R. further emphasized that it need to be appreciated that being an inclusive definition the term has a formidably wide and vague connotation. He submitted that the expression has an elastic ambit and the Courts while dilating the term have always qualified their destination by saying that it is not exhaustive. A bare perusal of the above definition reveals that the Legislature has included the following within the scope of income:--

(a) any amount chargeable to tax under this Ordinance;

(b) any amount subject to collection or deduction of tax under the Ordinance;

(c) any amount treated as income under the Ordinance; and loss of income.

23. Placing reliance on the above definition the learned A.R. argued that it needs to be appreciated that -'write off loan' do not fall within the categories of (b), (c) or (d) as stated above, which are fictional amount denoted as "income" for the purpose of tax and are not income in the true meaning of the term. They submitted that now question is whether the `waiver' of loan by the lender constitutes an `income' in the hands of the borrower under the normal parlance of the term since reference to the same as such would constitute it to be chargeable to tax under the Ordinance.

The learned A.R. also referred meaning of income contained in Black's Law Dictionary and Ballentine's Law Dictionary.

24. To further support their arguments on this issue he relied upon various case laws. The leading case-law in this regard reported as AIR 1932 PC 138 wherein income was linked to the fruit ofa tree or the crop of a field. It was held by their lordship:--

"a periodical monetary return `coming in' with some sort of regularity from definite sources."

25. The learned A.R. further highlighted that income needs to `come "i' from a distinct and definite source and must be in the nature of Profit' or `gain' and not a mere notional increase due to a wind fall or gift.

26. In support to this contention he also placed reliance on the. various cases.

1983 PTD 30; 261 ITR 501; 13a Tax Mean 301 and 1987 PTD 482.

27. The learned. D. Rs. on the other hand have supported the orders passed by the two authorities below and submitted that there is a close connection between the principal and the assessee. The assessee has been remitting secret profits by way of transfer pricing to the principal company and in turn the principal company has waived the loans advanced to the Pakistani Company hence there is prima facie collusion between the two. Therefore, the department was fully justified in adding the said amount as an extraordinary gain to the company. To support their view they also relied upon certain decisions of the superior Courts.

28. We have considered the arguments of both the sides and also gone through the cases cited by the learned Representatives. We are afraid that the cases cited by the learned D.R. are not correctly relevant to the issue under consideration. For instance in the case 60 ITR 253 the assessee received an amount for maintaining rubber plants which was correctly held to be revenue as the assessee rendered services and looked after the plant. In another case 90 Tax 17 the company waived its loan as a gift in favour of the retiring director, yet in the case 74 Tax 1 the non resident company gave a business subsidy to the resident company which was held to be taxable. In our opinion this issue also requires thorough investigation as to whether the said amount falls under the term income or not and whether the amount remitted was a gain in the hands of the company or was advanced as a financial help to the company to reduce its huge losses. The Taxation Officer while making the assessment should carry out a detailed inquiry as to whether the loan waived was voluntary and without any obligation on the lender and that the company neither had a right nor any claim against it. The Taxation Officer should also examine the relation between the principal and company was that of parent and its subsidiary or whether there was business relationship between them. The Taxation Officer while re-assessing this issue should provide reasonable- opportunity of being heard to the assessee.

29. The next issues pertains to addition of non-allocation of expenses against interest income relating to assessment years 2001-2002 and 2002-2003 only. The learned A.R. submitted that the DCIT treated the amount received as interest income assessable as income from other sources and not as business income of the appellant. It was contended that the DCIT did not allocate expenses against this income. Our attention was invited to a decision reported as 1990 PTD 731 wherein it was held that when an income is assessed under section 22 then all the applicable provisions of section 23 will apply. Similarly when the said amount is treated under section 30 then all the provisions of section 31 will apply.

30. The learned D.R. on the other hand have supported that orders of the two officers below and submitted that as the assessee has failed to point out the expenses relating to the interest income earned by them hence the department was justified is not allocating any expenses against the said interest income.

31. We have heard learned counsel and also perused the judgment cited supra. In our opinion it is trite law that when any income is assessed then its related expenditure has to be allowed. When the said income is assessed under section 30 then as power the provisions of section 31 of the repealed Ordinance its related expenses have to be allowed. It is therefore appropriate if the case is remanded back to the DCIT with the instructions to require from the assessee to submit the expenditure incurred in relation to earning of the above income.

32. The next issue pertains to disallowance of loss on amalgamations which relates to assessment years, 2002-2003 only. The learned A.R. submitted that the DCIT disallowed the loss of subsidiary company which was amalgamated with the appellant with the observation that the said loss is capital in nature. It was submitted by the learned A.R. that this issue already stands settled in favour of the appellant by the decision of learned Income Tax Appellate Tribunal reported as 2007 PTD (Trib.) 1885 wherein under identical circumstances the learned Income Tax Appellate Tribunal has allowed the loss in case of amalgamation.

33. The learned D.R. on the other hand supported the orders of the two authorities below and also submitted that the decision upon which the learned A.R. has placed reliance is distinguishable.

34. After having considered arguments of both the sides we tend to agree with the submission made by the learned D.R. The decision relied upon by the learned A.R. is quite distinguishable as in the case the question was with regards to carry forward of the assessed business losses whereas in the present case the loss claimed by the assessee is nothing but accounting loss which has rightly been disallowed as a capital loss. Hence the appeal filed by the assessee in this issue is hereby R dismissed.

35. The appeals are disposed of to the extent and in the manner indicated above.

C.M.A./105/Tax(Trib.)Order accordingly.