2010 P T D (Trib.) 679
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmed, Chairman, Jawaid Masood Tahir Bhatti, Judicial Member and Khalid Siddiqi Accountant Member
I.T.As. Nos.218/KB, 1278/KB and 1279/KB of 2006 decided on 03/08/2009.
(a) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(b)---Rules for computation of the profits and gains of insurance business---General Insurance---Disallowance of provision for diminution/depreciation in value of investment ignoring the fact that the claim was an admissible deduction---Validity---Claim of depreciation/diminution/provision in the value of investment was allowable in terms of R.5(b) of the Fourth Schedule to the Income Tax Ordinance, 1979 being a specific provision if the same was accounted for in the accounts and R.5(a) of the Fourth Schedule could not be invoked to disallow the claim.
C.I.T. Central, Karachi v. Alpha Insurance Company Limited and Home Insurance Company Limited PLD 1981 SC 293; E.F.U. General Insurance Co. Ltd. v. Federation of Pakistan 1997 SCC 1174 = 1997 PTD 1693; 1988 PTD (Trib.) 140; Habib Insurance Co. Ltd. v. C.I.T. PLD 1985 .SC 109; 1999 PTD 4138 and 1992 PTD 736 rel.
1989 PTD (Trib.) 192; I.T.As. Nos.2150 and 2151 KB of 2001; I.T.A. No.1105 and 1106/KB of 2005; I.T.A. No. 1756/KB/2003; 2004 PTD 1602; 1989 PTD (Trib.) 1263; 2006 PTD 356; Grindlays Bank PLC v. ACIT and Chairman Panel Companies I.T.A. No.565 of 2000 and 1992 PTD 1177 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., Rr.5(a) & 5(b)---General Insurance---Scope of provisions of R.5(a)(b) of Fourth Schedule, Income Tax Ordinance, 1979---Rule 5 (a) caters to expenditure or allowance or any reserve or provision for any expenditure which was not deductible against income under the head "income from business" and was specific for the amounts both notional or actual either written off or taken to reserve, or taken credit for in the accounts in relation to depreciation or loss, or appreciation or gain on securities---When the legislature had provided a specific provision for dealing with a particular situation, the general provisions could not be invoked for the particular situation---Rule 5(b) was specific in nature dealing with two types of situations; it caters to depreciation or loss on the realization of investments and appreciation or gains on the realization of investments.
(c) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(b)---General Insurance---Purpose of enacting Rule 5(b) of the Fourth Schedule of the Income Tax Ordinance, 1979 was negated if it was accepted that R.5(b) of the Fourth Schedule of the Income Tax Ordinance, 1979 was only applicable in cases where the amounts were realized (on actual basis) and the legislature had deliberately not used the word "provision ".
(d) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(a) & (b)---General Insurance---Nature of provision of R.5(a)(b), Fourth Schedule of Income Tax Ordinance, 1979---Provisions of R.5(a) and (b) of the Fourth Schedule of the Income Tax Ordinance, 1979 were specific and distinct in nature and were to be invoked in specific situations.
(e) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., Rr.5(a) & 5(b)---Overriding effect---General provisions of R.5(a) of the Fourth Schedule of the Income Tax Ordinance, 1979 could not override the specific provisions of R.5(b) of the Fourth Schedule of the Income Tax Ordinance, 1979.
1999 PTD 4138 and 1992 PTD 736 rel.
(f) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(b)---General Insurance---Notional loss or diminution/depreciation in the value of investment which had been treated as provision for diminution by the department was duly allowable in terms of R.5(b) of the Fourth Schedule of the Income Tax Ordinance, 1979 if the same either written off or taken to reserve---Notional appreciation in the value of investment was taxable if the same was taken credit for in the accounts.
(g) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(b)---General Insurance---Word "provisions"---Use of word `provision' did not change the nature of the claim since a provision was also charged to accounts.
(h) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(b)---General Insurance---Nature of the claim and not the form was to be seen to find out whether the same was taxable or otherwise.
(i) Income Tax Ordinance (XXXI of 1979)---
----Fourth Sched., R.5(b)---Income Tax Act (XI of 1922) Preamble---General Insurance---Provision for diminution---Allowability---Notional appreciation in the value of investment taken credit for in accounts was taxable under the relevant provisions of the First Schedule to the Income Tax Act, 1922---Notional loss or depreciation/ diminution in the value of investments termed as provisions for diminution was also allowable deduction.
(j) Income Tax Ordinance (XXXI of 1979)---
---Fourth Sched., R.5(b)---General' Insurance---Accounts---Sanctity of--Sanctity has to be granted to accounts prepared under the provisions of insurance law and an Assessing Officer did not have authority to upset the integrity of such accounts.
C.I.T. Central, Karachi v. Alpha Insurance Company Limited and Home Insurance Company Limited PLD 1981 SC 293; E.F.U. General Insurance Co. Ltd. v. Federation of Pakistan 1997 SCC 1997 SCC 1174 = 1997 PTD 1693 and Habib Insurance Co. Ltd. v. C.I.T. PLD 1985 SC 109 rel.
(k) Income Tax Ordinance (XXXI of 1179)---
----Fourth Sched., R.5 (b)---General Insurance---Nature of provision of R.5(b), Fourth Sched., Income Tax Ordinance, 1979---Provisions of R.5(b) of the Fourth Schedule to the Income Tax Ordinance, 1979 were non obstante in nature which overrides the other provisions.
Hassaan Naeem and Faisal Ahad for Appellant.
Riazuddin, Legal Advisor, Farrukh Ansari, D.R. and Rahmat Ullah Khan Wazir, D.R. for Respondent.
ORDER
The taxpayer is a public limited company quoted on the, Karachi and Lahore Stock Exchanges and is engaged in the business of general insurance in Pakistan.
2. The Full Bench has been constituted on the request made by the appellant vide Tribunal Notification F.151-ATP/HQ/(Ad)/2009/390 dated 20th June, 2009 to decide the issue regarding disallowance of provision for diminution in the value of investment in terms of Rule 5(b) of the Fourth Schedule to the Income Tax Ordinance, 1979 (repealed). According to the appellant, there has been conflicting decisions given by different benches of the learned Tribunal on the issue of allowance/disallowance of the claim of depreciation/diminution in the value of investment made by an insurance company which claim as per the appellant is allowable under Rule 5(b) .of the Fourth Schedule ibid.
3. The appellant was represented by Syed Hassaan Naeem and Mr. Faisal Ahad, Advocates while the department was represented by Mr. Riazuddin the learned legal advisor and Messrs Farrukh Ansari and Rahmatullah Khan Wazir, the learned DRs from the LTU, Karachi. Syed Hassaan Naeem, the learned AR at the outset invited our attention to the provisions of section 26(a) of the repealed Ordinance and argued that the computation of profits and gains of the business of insurance is governed by the special provisions contained in section 26(a) above, which reads as under:----
"26. Special provisions regarding business of insurance and production of oil and natural gas and exploration and extraction of other mineral deposits, etc.
Notwithstanding anything contained in this Ordinance.
(a) the profits and gains of any business of insurance and the tax payable thereon shall be computed in accordance with the rules contained in the Fourth Schedule;
4. He contended that the non obstante provisions of section 26(a) refer to the Rules contained in the Fourth Schedule to the repealed Ordinance wherein Rule 5 of the Fourth Schedule provides sanctity to the annual accounts prepared and maintained in accordance with the Insurance Act, 1938 (now Insurance Ordinance, 2000) which are furnished to the Controller of Insurance under the said Act. However, with the repeal of the Insurance Act, 1938 and the Insurance Rules, 1958, and with the promulgation of the Insurance Ordinance, 2000 in August 2000, these powers/ functions now rest with the Securities and Exchange Commission of Pakistan.
5. He argued that in view of the above provisions the authority of the Assessing Officer while dealing with the assessment of the business of general insurance under the repealed Ordinance is limited to the extent specified in clauses (a), (b) and (c) of Rule 5, which is reproduced hereunder---
"5. General Insurance.
The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Act, 1938 (IV of 1938) to be furnished to the Controller of Insurance subject to the following adjustments, namely:--
(a) any expenditure or allowance, or any reserve or provision for any expenditure, or the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head "Income from business or profession" shall be excluded;
(b) any amount either written off or taken to reserve to meet depreciation or loss on the realization of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation, or gains on the realization, of investments shall be treated as part of the profits and gains:
Provided that the Deputy Commissioner is satisfied about the reasonableness of the amount written off or taken to reserve in the accounts to meet depreciation, or loss on the realization, of investments, as the case may be.
(c) Nothing contained in this rule shall be construed to authorize deduction of any expenditure or allowance or reserve or provision in excess of the limits laid down in the Insurance Act, 1938 (IV of 1938).
6. In this connection the learned AR referred to the decision given by the Honourable Supreme Court of Pakistan reported as PLD 1981 SC 293 re: CIT, Central, Karachi v. Alpha Insurance Company Limited and Home Insurance Company Limited, wherein the Apex Court had clearly specified the limitations contained in the parallel provisions of the repealed Income Tax Act, 1922 viz. Section 10(2) read with Rule 6 of the First Schedule to the said Act, in the following manner:--
"10. The jurisdiction of the Income Tax Officer under rule 6 of the First Schedule to the Income Tax Act is confined to the taking of the profits and gains of any business of insurance other than life insurance "to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act 1938 to be furnished to the Controller of Insurance." This presents the Assessing Authority with a fait accompli, over which he exercise no control. If the law requires such excess to be excluded from the balance sheet the Assessing Authority cannot reintroduce it. If the law, as in these cases requires such expenses to be included in the balance sheet, the Assessing authority cannot exclude it on any principle not made a part of the First Schedule to the Income Tax Act. This brings us back to the starting point, namely, that the Income Tax Officer has "no power to do anything not contained in the First Schedule to the Income Tax Act."
11. ..
12. ..
13. ..
14. Our conclusions therefore are that:
(i) the rules contained in the First Schedule to the Income Tax Act, completely, exhaustively and to the exclusion of every other provision not expressly incorporated, govern the computation of the Profit and Gains of insurance business.
(ii) .
(iii) the power of the Assessing Authority under first part of rule 6 (ibid) to read just the balance of the profits disclosed by the annual accounts required to be furnished under the insurance Act, 1938 is restricted to "exclude from it any expenditure, other than expenditure" which may under the provisions of section 10 of the Income tax Act, .be allowed for computing the profits and gains of a business. The Assessing Authority has to apply an independent mind uncontrolled by Insurance Act to arrive at such a re-adjustment:
(iv) "
7. He then referred to another judgment of the Honourable Supreme Court of Pakistan in the case of E.F.U. General Insurance Co. Ltd. v. Federation of Pakistan reported as 1997
SCC 1174 = 1997 PTD 1693. In this case, the Apex Court has held as under---
"9. From section 26(a)' of the Ordinance, section 10(7) of the Act read with rule 5 of the Fourth Schedule (First Schedule of the Act) and the relevant provisions of the Insurance Act, 1938, it would follow that the Income Tax Officers have very limited jurisdiction to challenge the accounts submitted by a company dealing in Insurance business. The jurisdiction of the Income Tax Officer is limited to the clauses (a) and (b) of rule 5 of the Fourth Schedule to the Ordinance (and provided in rule 6 of the First Schedule to the Act). Subject to the above, the Income Tax Officer is not competent to challenge the accounts submitted by the assessee under the Insurance Act, 1938. The Income Tax Officer cannot go behind such accounts. This question has been considered in sufficient detail by this Court in an earlier judgment in the case of Commissioner of Income Tax v. Phoenix Assurance Company Limited 1991 SCMR 2485. It was inter alia noted in the said judgment as follows:
(i) Under section 11 of the Insurance Act, 1938 every Insurance Company has to prepare, at the expiration of each calendar year, a balance-sheet, a profit and loss account and a revenue account in the prescribed form to be authenticated;
(ii) Under section 15, such audited accounts and statements have to be furnished to the Controller of Insurance as returns;
(iii) Section 18 of the Insurance Act requires every insurance company to furnish to the Controller of Insurance a certified copy of every report on the affairs of the Concern which is submitted to the members or policy holders of the insurance.
(iv) Section 21 enables the Controller of Insurance to call for such further information from the insurer in respect of the return furnished by it if he feels that the same is inaccurate or defective in any manner;
(v) He can examine the books of accounts, registers and documents, as well as any officer of the insurer;
(vi1) He is empowered to decline to accept any return unless the inaccuracy has been corrected or the deficiency has been supplied and in case the Controller of Insurance declined to accept any return, the insurer shall be deemed to have failed to comply with the provisions of section 15 of the Insurance Act relating to the furnishing of return. After referring to these provisions of the Insurance Act, it was then observed by this court that it was in this context that finality has been given to the accounts for purposes of rule 6 of the First Schedule to the Act (rule 5 of the Fourth Schedule to the Ordinance). It was held that the Income Tax Officer was not competent to upset the integrity of the accounts submitted by the assessee under the Insurance Act 1938 by applying the ordinary rules for computation of profits and accounts and for assessment of tax in the light of the provisions of Income Tax Law in respect of the income in regard to the head "business". It was also held that there was no substance in the contention that the combined effect of Act section 10(7) read with rule 6 of the First Schedule to the section 26(a) read with rule 5 of the Fourth Schedule to the Ordinance was that the Income Tax Officer was vested the power to probe into the accounts submitted by the insurance company with a view to determining the real nature of any item of such accounts for purpose of excluding it in order to adjust the balance of profits."
8. Based on the above case law, the learned AR contended that the authority of the Assessing Officer is limited in making assessments of the business of insurance as he is only authorized to act with reference to the provisions contained in the Rules of the Fourth Schedule. He specifically referred to the observations of the apex Court reproduced above to the effect that finality has been given to the accounts for purposes of rule 6 of the First Schedule to the Act (rule 5 of the Fourth Schedule to the repealed Ordinance) and that the Assessing Officer was not competent to upset the integrity of the accounts submitted by the assessee under the Insurance Act, 1938 by applying the ordinary rules for computation of profits and accounts and for assessment of tax under the head "income from business'. It was also held that there was no substance in the contention that Assessing Officer is vested with the power to probe into the accounts submitted by an insurance company with a view to determine the real nature of any item of such accounts for purpose of excluding it in order to adjust the balance of profits.
9. Arguing on the issue for which this Larger Bench has been constituted, it was submitted by the learned AR that the Taxation Officer has disallowed the provision for diminution/depreciation in the value of investment in the years under appeal ignoring the fact that the claim is an admissible deduction as per Rule 5(b) of the Fourth Schedule to the repealed Ordinance. The relevant portion of the said Rule is reproduced below for ease of reference---
"(b) any amount either written off or taken to reserve to meet depreciation or loss on the realization, of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation, or gains on the realization, or investments shall be treated as part of the profits and gains."
10. According to the learned AR in terms of the above provisions not only the actual loss sustained on sale of investments but also the amount of provision made in this regard is an allowable deduction while computing income of insurance companies. Further by providing a specific rule, the legislature has distinguished this provision from, the other general provisions for expenses, which are not allowable as per Rule 5(a) of the Fourth Schedule. Therefore, making recourse to rule 5(a) for disallowing this specific provision is not justified and permissible under the relevant law on any ground. He further stated that the above provisions also speak of sums taken credit for in the accounts on account of appreciation or gain on realization of investments treated as income. For this he refers a decision of the Tribunal reported as 1988 PTD (Trib.) 140. In this case the Tribunal discussed the situation under Rule 5(b) where the Income Tax department taxed the artificial appreciation on investment. The Tribunal gave the following verdict by interpreting Rule 5(b) of the Fourth Schedule to the repealed Ordinance:--
"6. It also is to be borne in mind that in the present case what was charged to tax, as per provisions of Rule 5(b) of the Fourth Schedule, was"...sum taken credit for in the accounts, on account of...gains on the realization of investments. If it is presumed, for the sake of arguments, the there was no transaction of sale of shares etc, even then, we entertain no doubt the assessing officer could still bring to charge to tax the notional or artificial income if the same was "taken credit for in the accounts on account of appreciation...of investments". A judgment to this effect was delivered by the highest legal forum of the realm in PLD 1985 SC 109 in yet another case of Habib Insurance Company Limited where their Lordships were submitted to the Controller of Insurance; is not in dispute and, therefore, we need not take long to hold that the same was correctly brought to tax, though a correct nomenclature may not have been assigned."
11. He further invited our attention to a decision of the Honourable Supreme of Pakistan in the case of Habib Insurance Co. Ltd. v. CIT reported as PLD 1985 SC 109. In this case the controversy involved before the Honourable Court was with regard to taxing of appreciation in the book value of immovable properties vis-a-vis realization in respect of properties sold and appreciation in the book value of shares on the strength of Rule 3(b) of the First Schedule to the repealed Income Tax Act, 1922. According to the appellant the dispute was that brought to tax on the basis of the balance sheet prepared under the Insurance Act, 1938 and provisions made for its adoption by the Income Tax Act, 1922 in Rules 3 and 6 of the First Schedule whereby the above appreciation in the book value of investments was accounted for as income in the books of account. The apex Court while discussing the sanctity of accounts prepared under the Insurance Law observed and held as under:--
"The completeness and the importance of the accounts prescribed under Insurance Act for a company carrying on business of Insurance, even for purposes of Income tax will be apparent from a close examination of its provisions. Section 11 of the Act enjoins an insurer to prepare at the expiration of each calendar year a balance-sheet, a profit and loss account, and a revenue account in the prescribed form to be authenticated in the manner indicated. Rule 6 of the First Schedule to the Act provides:--
"There shall be appended to the balance sheet a statement in Form AA as set out in Part II of this Schedule showing the market value and the book value of the assets in Pakistan."
Part II form 'A' (Form of Balance Sheet) requires disclosure of the value of "other ordinary stocks and shares of companies incorporated (i) in Pakistan (ii) out of Pakistan"; "holdings in subsidiary companies"; "House Property (i) in Pakistan, (ii) out of Pakistan". The profit and loss account (Part II From B) requires disclosure inter alia of "Loss on realization of Investments (not charged to Reserve or any particular Fund or Account); "Depreciation of Investments (not charged to Reserves or any particular Fund or Account); Profit on realization of .Investments (not credited to Reserves or any particular Fund or Account); "Appreciation of Investments (not credited to Reserves or any particular Fund or Account). It is such a statement of account which under section 10(7) First Schedule of the Income-tax-Act serves as the basis for the Income Tax Officer as would appear from rule 6:---
6. The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of while are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance after adjusting such balance so as to exclude from it any expenditure other than expenditure which may under the provisions of section 10 of this Act be allowed for in computing the profits and gains of a business. Profits and losses on the realization of investments and depreciation and appreciation of the value of investments shall be dealt with as provided in rule 3 for the business of life Insurance."
Rule 3 provides as follows:--
"3. In computing the surplus for the purpose of rule 2:--
(b) any amount either. written off or reserved in the accounts or through the actuarial valuation balance sheet to meet depreciation of or loss on the realization of securities or other assets shall be allowed as a deduction, and any sums taken credit for in the accounts or actuarial valuation balance sheet on account of appreciation of or gains on the realization of the securities or other assets shall be included in the surplus:
"Provided that if upon investigation it appears to the Income Tax Officer after consultation with the Controller of Insurance that having due regard to the necessity for making reasonable provision for bonuses to participating policy-holders and for contingencies; the rate of interest or other factor employed in determining the liability in respect of outstanding policies is materially inconsistent with the valuation of the securities and other assets so as artificially to reduce the surplus, such adjustment shall be made to the allowance for depreciation of, or to the amount to be included in the surplus in respect of appreciation of, such securities and other assets; as shall increase the surplus for the purposes of these rules to a figure which is fair and just."
(c) .
It was from such a statutory statement that the disputed amounts were picked up and brought to charge. It was not, on the facts ascertained, within the competence of the Taxing Officer to exclude them from the accounts, or to ignore them as a component of the business of insurance".
12. In light of the above, it was argued that if any artificial appreciation in the value of investment taken credit for in the accounts is chargeable to tax in the absence of actual transaction of sale, on the same analogy any diminution/ depreciation in the value of investment taken to reserve to meet depreciation or loss on valuation is allowable as a deduction without involving any actual transaction of investments. He further argued that in 1989 PTD (Trib.) 192, while dealing with similar provisions available for companies engaged in life insurance business as contained in Rule 3(b) of the Fourth Schedule to the repealed Income Tax Act, 1922, the Tribunal observed asunder:---
"35. The amount written off or reserved in the accounts for depreciation, or loss on sale of securities and other assts, is to be allowed as deduction. This is a mandatory provision. The option is of the assessee either to write off or to carry it to reserve. The reserve created must be equivalent to the amount of depreciation or loss but not more. This is a peculiar provision of law."
48. As regards provision for depreciation on investment the learned D.R. stated that this is an expenditure and rightly added by the ITO for reasons recorded therein. However, we find that this is an allowable expenditure under Rule 3(b) of the Fourth Schedule of the Ordinance.
13. Further reliance has been placed on the case of New Jubilee Insurance Company Limited in I.T.As. Nos.2150 and 2151/KB of 2001 vide order dated August 15, 2002 where the Tribunal set aside the disallowance of provision for diminution in the value of investment while holding that the claim is legitimately allowable under Rule 5(b) of the Fourth Schedule to the repealed Ordinance provided the conditions as set out in the proviso to Rule 5(b) are fulfilled. The Tribunal held as under:--
"Considering all the facts and case-law we are of the view that it is the prerogative of the assessing officer to allow depreciation on investment or not but due to past examples in assessment year 1989-90 On this issue the learned CIT-Appeals had given some relief and the department has not filed any appeal and also in the unreported case-law, it is mentioned that no evidence was produced, therefore, it would not click this issue. In view of this we set-aside the finding on this issue for both the assessment years and direct the Assessing Officer to verify the amount written off or taken or reserve to meet the depreciation and then pass the appropriate order."
14. It was submitted that in the appeal effect orders passed subsequent to the above decision, the claim of diminution in the value of investment was again disallowed on the basis that the claim being mere provision is not allowable under Rule 5(b). The matter was again appealed against and the Tribunal decided the appeal filed by the appellant (I.T.As. Nos.1105 and 1106/KB of 2005) vide its order dated 21 August 2007 in the following manner:--
"6. We have given anxious consideration to the arguments given by the two sides in the light of the relevant provisions of law and the judgments cited at the bar. Before proceeding to analyse the relevant rule and to evaluate the arguments advanced by the two sides. we deem it appropriate to place on record that in the impugned order the learned CIT(A) has given his mind that he found the contention of the AR to be forceful and that the impugned claims were governed by the provisions of rule 5(b) and as such the reliance on rule 5(a) ibid by the Taxation Officer was not correct. The Revenue has not contested this finding since no appeal has been filed against this order. On the other hand the taxpayer is only aggrieved with setting aside of the issue by the learned CIT(A) whereas in his opinion after this finding the learned CIT(A) should have granted straight relief by deleting disallowance.
7. Before proceedings further it would be worthwhile to reproduced rule 5 of the Fourth Schedule to the Repealed Ordinance.
"5. General Insurance,--The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Act, 1938 (IV of 1938) to be furnished to the Controller of Insurance, subject to the following adjustments namely:--
(a) any expenditure or allowance, or any reserve or provisions for any expenditure, to the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head "Income from business or profession" shall be excluded;
(b) any amount either written off or taken to reserve to meet depreciation or loss on the realization of investments shall be allowed as a deduction and any sums taken credit for in the accounts on account of appreciation or gains on the realization of investment shall be treated as part of the profits and gains;
Provided that the Deputy Commissioner is satisfied about the reasonableness of the amount written off or taken to reserve in the accounts to meet depreciation or loss on the realization of investments as the case may be."
15. Now coming to the relevant rule a bare perusal would clarify that there is direct nexus between the two sub-rules which are not mutually exclusive. Whereas sub-rule 5(a) deals with an expenditure or allowance or any reserve or provision for any expenditure sub-rule 5(b) comes into play when deprecation or loss on the realization of the investment and conversely depreciation or gain or realization of investment has been declared. However, it would be seen that adjustment of depreciation on investment shall be considered only if the amount in question has either been written off or taken to reserves. Straight loss on realization is obviously deduction under rule 5(b). The upshot of this discussion that if there is a depreciation on investment, the same shall be allowed as deduction if after examined on of the accounts, the Taxation Officer is satisfied not only that the amount has been written off or taken to reserves but also that such amount is reasonable. The honourable ITAT in its judgment dated 15-8-2002 in the appellant's case had given direction to the Assessing Officer to verify the amount written off or taken to reserve to meet the depreciation and then pass the appropriate order. By giving this direction the honourable ITAT in our opinion had impliedly concurred that the appellant's case was covered by rule 5(b) since adjustment on account of depreciation on investment was involved. In the reassessment proceedings, the Assessing Officer issued a notice which has been reproduced in earlier para. and which certainly appears to be in deviation to the direction of the honourable ITAT. If the objection of the notice was to verify the entries in the accounts as directed by the honourable ITAT then the intention to disallow the claim under, rule 5(a) is misplaced. The reply furnished by the assessee is also found to be slightly evasive and off the mark. Surprisingly, the Assessing Officer while rejecting the explanation of the assessee has again referred to the failure of the assessee to justify reasonableness of the amount written off in the books of accounts as required by proviso to rule 5(b). Some other reasons for rejection of the explanation have also been given, some of which are quite valid but required a further examination of the issue. The bottom line is that if the amount in question had been recorded as a mere provision, then of course rule 5(a) would have been applicable and disallowance was clearly warranted. But in case, the amount equivalent to depreciation has either been written off or taken to reserves in the accounts of the assessee then of course rule 5(b) would be applicable and necessary verification as directed by the earlier order of the honourable ITAT is definitely required. It would also be pertinent to mention at this juncture that in the appellant's own case for the subsequent assessment year i.e. 2001-02 the honourable ITAT has given a judgment against the appellant in ITAT No.1756/KB/2003 dated 15-3-2006 and the relevant extract of the judgment is as hereunder:--
"This tribunal in many cases including in assessee's own case held that diminution in the value of stocks and shares is not an expenditure which can be allowed as an allowance from total income. There was, therefore, obviously no reason for 'set aside of the case on this issue.
The result is obvious. Assessee appeals are dismissed while departmental is allowed. Notional diminution in the value of the shares is not an allowable expense. However, where the same are actually sold the decrease in value shall obviously be loss and not diminution. The Assessing Officer orders are therefore resorted to this extent."
It is apparent that the claim was on account of notional diminution which was not acceptable and the issue stands settled in a number of other judgments as well. Therefore, in the instant case what needed to be established was the fact as to whether the claim was on account of notional depreciation or-a depreciation which has been written off or taken to reserves. Obviously this would require verification from the accounts maintained by the appellant company. We are persuaded to agree with the learned DR that the observation of the honourable ITAT in the case reported as 1988 PTD (Trib.) 140 referred to by the learned counsel were by way of obiter dictum which was not binding and also that other case-law referred to by the learned counsel was in respect of companies engaged in life insurance business which were governed by different provisions of law and therefore a strict parallel could not be drawn. In the light of above facts we feel that the issue has not been thrashed out in a manner strictly in accordance with the provisions of law. We hardly have any doubt that the depreciation on investment is covered by rule 5(b) and the claim was allowable if the requirement of rule 5(b) has been met and also that the Taxation Officer was satisfied with the reasonableness of the claim this exercise has unfortunately not been carried out in precise manner and a number of missing links still exist which need to be adequately taken care of. If the decline in the value of investment was permanent as claimed by the appellant the same should be acceptable on the touchstone of International Accounting Standard and the Technical Releases issued by the ICAP. The appellant should provide all necessary documents in support of the claim which should be examined by the Assessing Officer in the light of the relevant provisions of law. In this view of the matter we do not find any reason to interfere with the order of the learned CIT(A) to set aside the assessments for both the years for re-examination of the issue in the light of the direction of the honourable ITAT in its order dated 15-8-2002."
16. Also refers a Circular letter vide No.F.4(4) DPT-I/94 dated 6 December 1985 wherein the Central Board of Revenue opined in the following manner:---
"Insurance companies are being assessed as different companies in accordance with the rule prescribed in the Fourth Schedule to the Income Tax Law since 1927. Basis of assessment in case of insurance companies are the accounts as presented to the Controller of Insurance.
The income tax department cannot make any changes in these accounts for the determination of income except on account of two minor points that relate to-.
(i) Inadmissible expenses prescribed in law, and
(ii) Amount written off or taken to reserve in the accounts to meet depreciation or loss on the realization of investments.
In the process the insurance companies get a concessional treatment. No add backs are made. They are allowed to charge as expenses special provisions for anticipated risks etc.
It has been confirmed by higher courts that assessment in case of insurance companies have to be on the basis of those accounts enbloc without any alteration etc.
The Department is thus, in' no position to charge the assessment to a method other than that provided by the law under Fourth Schedule.'
17. The learned AR then submitted a copy of the decision of the Tribunal reported as 2004 PTD 1602 and submitted that in this decision the disallowance of diminution in the value of investment was upheld by holding that the claim is not allowable in terms of Rule 5(a) of the' Fourth Schedule. For ease of reference the relevant findings are reproduced below--
"6. The next issue pertains to upholding the 'disallowance of provision for diminution in the value of investments amounting to Rs.30,022. The learned Assessing Officer placing reliance on Rule 5(a) made the addition disallowing the provision made for diminution in the value of investment, assessed, amounting to Rs.30,022. Before the learned C.I.T. (A) it was vehemently urged that allowances are covered under rule 5(b) and rule 5(a) has nothing to do in the present case. However, the learned C.I.T. (A) disagreed with the contention and maintained the treatment of the learned DCIT.
7. Heard the learned representatives of the two parties. It is argued that order confirming the treatment placing reliance on Rule 5(a) instead of Rule 5(b) is erroneous. Before making any further discussion, it would be appropriate to reproduce rules 5(a) and 5(b) of IVth Schedule to the Income Tax Ordinance, 1979:---
Rule 5(a) "Any expenditure or allowance or any reserve or provision for any expenditure, or the mount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head Income from Business or Profession shall be excluded.
Rule 5(b) Any amount either written off or taken to reserve to meet depreciation or loss on the realization of investment shall be allowed as deduction and any sums taken credit for in the accounts on account of appreciation or gains on the realization of investment shall be treated as part of the profits and gains."
8. Rule 5(a) provides exclusion of an expenditure or allowance or any reserve or provision for any expenditure, whereas rule 5(b) is nothing to do with the provision. It simply referred to amount either written off or taken to reserve to meet depreciation. Assessment order reveals that assessee has made provision for diminution in the value of investment. Accordingly, the inference drawn by the Tribunal that the claim of depreciation/ diminution in the value of investment and since it is a provision for expenditure, it is inadmissible under Rule 5(a) of the IVth Schedule to the Income Tax Ordinance, 1979, hence order of the learned C.I.T.(A) confirming the treatment based on an order reported as (1992) 66 Tax 33 does not warrant interference."
18. It appears from the above findings that the Tribunal has formed the opinion that the claim of diminution/depreciation in the value of investment is governed by rule 5(a) being a provision for expenditure and therefore, rule 5(b) is not relevant.
19. According to the AR whilst Rule 5(a) excludes from deductibility against income, any expenditure, allowance or any reserve or provision for expenditure, rule 5(b) is specific to appreciation or depreciation either notional or actual, of investments made by an insurance company. Under rule 5(b) on one hand, appreciation of the value of investment either notional or actual is liable to tax as income of an insurance company; on the other hand, depreciation or loss of the value of investment either notional or actual is allowable as a deduction against income of an insurance company. Upon simple reading of rule 5(b) it appears that the provisions of rule 5(b) covers both conditions i.e. actual gain/loss on sale of investment and creating a reserve to meet depreciation/diminution in the value of investment. Accordingly, the inference drawn by the Tribunal that the claim of depreciation/ diminution in the value of investment being a provision is governed by rule 5(a) hence inadmissible is contrary to the specific provisions of rule 5(b) of the Fourth Schedule above. In other words it is clear from the provisions of Rule 5(b) that not only the actual loss sustained on sale of investments but also the amount of provision made in this regard is an allowable deduction while computing income of insurance companies. It was emphasized by the AR that by providing a specific rule, the legislature has distinguished this provision from the other general provisions for expenses, which are not allowable as per Rule 5(a) of the Fourth Schedule. Therefore, taking recourse to Rule 5(a) for disallowing this specific provision is not justified on any ground. To support his contention that for meeting a particular situation for which specific provisions are available under the statute, general provisions should not be invoked the AR relied on 1999 PTD 4138 (Lahore High Court) and 1992 PTD 736 (Karachi High Court).
20. The learned DRs rebutting the contentions raised on behalf of the appellant submitted the following arguments:---
"At the very outset it is submitted that both in Rule 5(b) of Fourth Schedule of the Repealed Income Tax Ordinance, 1979 and that of Income Tax Ordinance, 2001 the legislature has deliberately not used the word "Provision" which means that no provision whatsoever is allowable under Rule 5(b) of Fourth Schedule of either of the Ordinances, Rule 5(b) deals with the appreciation or depreciation in the value of investment on actual basis i.e. on realization. In the case of appreciation subject to realization and recording in the books by valuing the investment on the balance sheet date the same (appreciation) is taxable as part of profits and gains of business of insurance. As far as depreciation on investment is concerned it is allowable subject to the condition that it must either be written off or taken to reserve. However in the appellants case the disallowance has been made of "the provision" on account of depreciation in value of investment which admittedly has neither been written off nor taken to the reserve as required under Rule 5(b). In this regard following extract from the order particularly of assessment years 2001-02 and 2002-03 of learned Taxation Officer will be beneficial to quote.
"Besides that the accounting policy for recording the fair value as per annual report as per note 2(i) of the financial statement published by the taxpayer mentions that the decline in value will be recorded when it is not temporary. In the instant case of Coca Cola Beverages Pakistan Limited the fair value in the subsequent years is even higher than the cost as apparent from its quoted share price as the Company was subsequently listed and the same facts as also floating on note 2.9.2 of the financial statement for period ending on 31-12-2004"
The above extract made it abundantly clear that provision for diminution in value of investment is not actual or realized as required in Rule 5(b). Hence not covered by the said Rule. The learned C.I.T. (A) therefore, has rightly held that Rule 5(b) is very clear and speaks of allowable deduction of amounts written off on realization of investment and not on the basis of "Provision" built on account of fluctuations without occurrence of realization of said investment.
It may not be out of place to mention here that the diminution in the value of investment claimed by the appellant is not an ascertained liability. The same has been claimed by the appellant at will this is evident from the table reproduced on page 2 of the order of C.I.T.(A) for the assessment year 2001-02 where market value per share of Dane Foods (Pvt.) Ltd. has been taken as minus 0.11 and that of Coca Cola Beverages (Private) Ltd. at Zero, whereas provision for the diminution in value of investment in these shares has been taken at Rs.26.431 (M) and 44.938 (M) respectively. The value at minus 0.11 and zero definitely does not reflect the actual depreciated value of investment therefore, not covered by the provision of Rule 5 (b), hence not admissible.
Without prejudice to the fact that no provision whether on account of appreciation or depreciation in the value of investment could be considered under Rule 5 (b), it is submitted that even under Rule 5(a) such provision is only to be considered subject to realization and recording in the books by valuing the investment on the balance sheet date the same (appreciation) is taxable as part of profit and gains of business of insurance. As far as depreciation on investment is concerned it is allowable subject to the condition that it must either be written off or taken to reserve in actual. This contention gets support from the ratio of decision reported as 1989 PTD (Trio.) 12.63. In this case it was observed by the Income Tax Ordinance that the book value of investment was Rs.8,652,138 whereas the market value was Rs.8,961,793. There was thus appreciation in the value of investment at Rs.309,655. The assessee was required to state as to why the appreciation in the value of investment may not be taxed. The reply received was not found convincing and addition of Rs.309,655 was accordingly made in the total income under sub-rule 3(b) read with rule 6 of the First Schedule to the 1922 Act. The learned C.I.T.(A) confirmed the addition with the following observations:
Contentions are examined Rules 3(b) read with rule 6 of the First Schedule of the Act provides for the allowance of reserves to meet the depreciation or loss on realization and simultaneously holds the sums taken credit for in the accounts on account of appreciation or gains on realization of the securities or other assets as part of surplus. It thus takes into account both the appreciation of the value of investments as well as the factual gains on realization of the profit. The Income Tax Ordinance in fact has not revalued the assets as contended. The book value and market value is taken from Form `AA' filed by the appellant himself. In view of the clear provision of law, the addition made by the Income Tax Ordinance is confirmed"
The Tribunal however held as under.
"The Two officers below have erred in invoking the provisions of sub-rule (b). This sub-rule is applicable where assets are revalued and the revaluation is, reflected in the financial books of account. The DR admits that no such revaluation was recorded in the books of account maintained for the year under consideration. The Income Tax Officer has invoked the provisions of this sub-rule on the ground that market value recorded in Form `AA' is more than its cost price. Form `AA' is not a part of book of accounts which are maintained to record historical cost of transaction. Form `AA' is prescribed by the Insurance Act to show comparative position of the book value and the market value of various assets of an insurance company. As this form is not a part of the financial accounts and as no sum has been taken credit in the accounts for appreciation of investment, the Income Tax Officer is not authorized to make this addition of Rs.309,655. The addition is, therefore, deleted."
Although above decision is against the department yet on the same analogy provision on account of diminution in value of investment which is not part of financial accounts cannot be allowed as deduction.
Needless to add that appellate Courts, time and again have termed the claims of provision for diminution in the value of investment as a tool for the purposes of corresponding reduction in the income/profits and gains. Reliance is placed on ratio of decision of learned ITAT reported as 2006 PTD 356. It has been held that:--
"The diminution in value of investment is not to be allowed as a loss for the purpose of corresponding reduction in income. Not only we have disapproved this proposition in the judgment referred above but the same have subsequently been followed in a number of other cases also. Recently while deciding a case on the issue of section 12(9A) namely Crescent Textile in R.A.228-229/LB of 2004, the Tribunal has confirmed disallowance of a similar proposition.
..The assessee is trying to reduce its income under the garb of the reduction of the value of stocks (share). He takes advantage of the language of the judgments that say that the value of stock in trade should either be at cost or market price, on the method of account adopted regularly and constantly. Even if we go by the proposition, the assessee had been declaring its value of shares at cost in the earlier years. There is, therefore, no consistency in maintenance of accounts. The Assessing Officer, therefore, rightly discarded the same up to this extent. Furthermore if in the years under discussion, the values of stock have increased will it be offered for taxation without selling the said stock? The answer again shall be an empathetically No. The judgments referred, therefore, are not of any help to the assessee."
The point of view of the undersigned gets support from the ratio of another decision of learned ITAT reported as 2004 PTD 1602. In this case the Assessing Officer while placing reliance on Rule 5(a) disallowed the provision for diminution in the value of investment claimed by the tax payer. It was argued before the C.I.T.(A) by the tax payer that allowance was covered under Rule 5(b) and Rule 5(a) has nothing to do with it. The learned ITAT has been pleased to uphold as under:--
"Rule 5(a) provides exclusion of expenditure or allowance or any reserve or provision for any expenditure, whereas rule 5(b) has nothing to do with the provision. It simply referred to amount either written off or taken to reserve to meet depreciation. Assessment order reveals that asseesse has made provision for diminution in the value of investment and since it is a provision for expenditure, it is inadmissible under Rule 5(a) of the IVth Schedule to the Income Tax Ordinance, 1979, hence order of the learned C.I.T.(A) confirming the treatment based on an order reported as (1992) 66 Tax 33 does not warrant interference."
From the forgoing decision of learned ITAT it follows that in computing profits and gains of general of Insurance business provision if any has to be dealt with under Rule 5(a) not Rule 5(b) of the Schedule and a plain reading of Rule 5(a) shows that expenses, allowances, reserves or provisions which are not deductible in computing the income chargeable under the head "Income from Business" shall be excluded. In other words provisions of sections 23 and 24 of the repealed Income Tax Ordinance, 1979 and 20 and 21 of the 2001 Ordinance have been made applicable in computing profits and gains of insurance business, There could be no two opinions about the fact that no provisions whatsoever are allowable either under the repealed or the present Income Tax Ordinance. This has been categorically so held in an unreported judgment of Honourable High Court of Sindh in I.T.A. No.556 of 2000 Dated 1-3-2006 (Grindlays Bank PLC v. ACIT and Chairman Panel Companies I) in the following Words:--
"In the first question our opinion is sought on the point whether the Tribunal was justified in rejecting the claim on account of provisions for bad and doubtful debts. We have asked the learned counsel for the appellant to show from the provisions, contained in section 23(1)(x) of the Income Tax Ordinance, 1979, if any provision for bad and doubtful debts is admissible deduction. After referring the relevant provision of law, the learned counsel is not able to show that any such claim can be allowed as deduction. The finding of the Tribunal is in consonance with the relevant provisions of law and no interpretation is required by this Court. Consequently, the Question No.(1) is not admitted for consideration by this Court.
The Departmental point of view in this regard is fortified by the following findings of the Honourable Sindh High Court in its judgment reported as 1992 PTD 1177 (HC Karachi) in respect of provisions and Rule 5(a) of Fourth Schedule to the repealed Income Tax Ordinance, 1979.
9. We may observe that the aforesaid decision related to assessments of the concerned insurance companies by the assessing authorities under the repealed Income Tax Act 1922, and as observed earlier, rules for computing the profits and gains of any business of insurance were contained in the First Schedule to the Act. However, the present four cases related to assessment years 1980-81 to 1983-84. Provisions of the repealed Income Tax Act, 1922, are admittedly not applicable to such assessments. These assessments are governed by Income Tax Ordinance, 1979, and as has been noticed rules for computation of profits and gains of insurance business are now contained in the Fourth Schedule to the Income Tax Ordinance, 1979, as provided by section 26(a) of the Ordinance. The relevant rule relating to the general insurance business is rule 5(a) which, prior to its amendment by the Finance Ordinance 1980, only referred to `expenditure or allowance'. Before its amendment, rule 5(A) was more or less similar to rule 6(1) to First Schedule to the repealed Income Tax Act. However by the amendment made through the Finance Ordinance 1980 words `any reserve or provision for any expenditure' etc, have been added after the words `any expenditure or allowance' in rule 5(a).
11. In the case of Phoenix Assurance Co. Limited Supreme Court has declared that finality attaches to the accounts submitted by the assessee insurance company under the Insurance Act to the Controller of Insurance and the limited jurisdiction vesting in the Income Tax Officer is only to exclude the expenditure from the balance of profits in such accounts which is not permissible under section 10 of the Act. As has been observed the aforesaid principle was enunciated on the basis of section 10(7) of the repealed Income Tax Act read with First Schedule to the Act in which the rules for computation of profits and gains of insurance business were contained and in rules 6(1) thereof the word "reserved or provision fora expenditure" did not find place. Now the rules are contained in the Fourth Schedule to the Income Tax Ordinance 1979. Still finality attaches to the accounts submitted by the assessee insurance company under the Insurance Act to the Controller of Insurance but jurisdiction now vests in the Income Tax assessing authorities to exclude expenditure, reserve and provisions for expenditure which is not permissible under section 26 of the Ordinance in view of Rule 5(a) of the Fourth Schedule to the Ordinance as amended by Finance Ordinance 1980.
12. In our opinion the Tribunal was right in confirming the order of Income Tax Officer disallowing the aforesaid provision for taxation gratuity and civil commotion in view of the amended rules 5 (a) of the Fourth Schedule to the Income Tax Ordinance."
In view of foregoing submissions it is respectfully submitted that no provision whatsoever is to be dealt with under Rule 5(b) of Fourth Schedule to the Ordinance, what to talk of provision on account of depreciation in value of investment. A provision is only to be dealt with under Rule 5(a) of Fourth Schedule to the Ordinance, subject to the conditions mentioned therein. A diminution in the value of investment is to be allowed as a deduction only if the amount is actually written off by the tax payer, which admittedly is not the appellant's case. The appeal filed and the relief sought is misconceived. Decisions of Taxation Officer and the learned C.I.T. (A) are strictly in accordance with law and may please be maintained."
21. We have considered the arguments of the learned counsel appearing on behalf of the appellant as well as on behalf of the respondent-LTU, Karachi. We have also gone through the case law cited in support of the arguments and other documents submitted during the course of hearing. To us the contentious issued involved in the above appeals is the claim of diminution/depreciation in the value of investments which according to the learned counsel for the appellant is governed by Rule 5(b) of the Fourth Schedule while in the opinion of the learned counsel for the respondent the same being mere provision is to be dealt with in accordance with Rule 5(a) ibid. Although both the Rules have been reproduced above while discussing the arguments put forward by the learned counsel yet we deem it appropriate to discuss the relevant provisions again. These are, therefore, reproduced below for ready reference.
(d) any expenditure or allowance, or any reserve or provision for any expenditure, or the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head "Income from business or profession shall be excluded;
(e) any amount either written off or taken to reserve to meet depreciation or loss on the realization, of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation, or gains on the realization, of investments shall be treated as part of the profits and gains:--
22. In our view the above two sub-rules are distinct and deal with separate situations. While Rule 5(a) caters to expenditure or allowance or any reserve or provision for any expenditure which is not deductible against income under the head "income from business" Rule 5(b) is specific for the amounts both notional or actual either written off or B taken to reserve, or taken credit for in the accounts in relation to depreciation or loss, or appreciation or gain on securities. In our view when the legislature has provided a specific provision for dealing with a particular situation, the general provisions cannot be invoked for that particular situation. Rule 5(b) is specific in nature dealing with two types of situations. It caters to (i) depreciation or loss on the realization of investments and (ii) appreciation or gains on the realization of investments. Further, the provisions rope in both types of amounts i.e. notional or actual which is evident from the use of the words "depreciation or loss", and "appreciation or gain". The use of the word "or" strengthens the above contention. This, to our mind clearly demonstrate the intention of the legislature. If the contention of the DRs is accepted that Rule 5(b) is only applicable in cases where the amounts are realized (on actual basis) and that the legislature had deliberately not used the word "provision" then the purpose of enacting Rule 5(b) is negated. As stated earlier the provisions of rules 5(a) and 5(b) are specific and distinct in nature and are to be invoked in specific situations. Accordingly, the general provisions of rule 5(a) cannot override the specific provisions of rule 5(b). We are fortified in our views on the strength of the decisions by the Honourable Lahore and Karachi High Courts reported as 1999 PTD 4138 and 1992 PTD 736. As far as notional loss or diminution depreciation in the value of investment which has been treated as provision for diminution by the department, we are of the view that the same is duly allowable in terms of Rule 5(b) ibid if the same is either written off or taken to reserve. Likewise, notional appreciation in the value of investment is taxable if the same is taken credit for in the accounts. The use of the word provision in our view does not change the nature of the claim since a provision is also charged to accounts. It is also settled that the nature of the claim is to be seen and not the form to find out whether the same is taxable or otherwise.
23. The reliance placed by the learned counsel on the decision of the Honourable Supreme Court of Pakistan in the case of Habib Insurance Co. Ltd. reported as PLD 1985 Supreme Court 109 and the decision of the Tribunal reported as 1988 PTD (Trib.) 140 is also very relevant. We note that the Honourable Supreme Court in the above decision has already held that notional appreciation in the value of investment taken credit for in accounts is taxable under the relevant provisions of the First Schedule to the late Income Tax Act, 1922 and the Tribunal also has taken a similar view. On the same analogy, notional loss or depreciation/diminution in the value of investments termed as provisions for diminution is also allowable as a deduction. It may be appreciated that this particular provision is available only in the cases of Insurance business right from the year 1927 both for Life and General Insurance business and in the Income Tax Ordinance. 2001 similar provisions also exist. We also note that the Honourable Supreme Court has granted sanctity to the accounts prepared under the provisions of the Insurance law and it has been held that an Assessing Officer does not have authority to upset the integrity of such accounts. What he is authorized is to act within the limitations provided in the Rules available in the Fourth Schedule. Here we may refer with advantage PLD 1981 SC 293 re: C.I.T., Central, Karachi v. Alpha Insurance Co. Ltd. and Home Insurance Co. Ltd. 1997 SCC 1174 = 1997 PTD 1693 re EFU General Insurance Co. Ltd. Co. Ltd. v. Federation of Pakistan and Habib Insurance Co. Ltd. v. C.I.T. reported as PLD 1985 SC 109, relevant excerpts of which have been already reproduced and discussed above. In all these cases the provisions contained in the Income Tax Law both in the late Act of 1922 and the repealed Ordinance of 1979 were discussed and it was noticed that these provisions are non obstante in nature which overrides the other provisions.
24. Based on the above discussion, it is our considered opinion that the claim of depreciation/diminution/ provision in the value of investment is allowable in terms of Rule 5(b) of the Fourth Schedule to the repealed Ordinance being a specific provision if the same accounted for in the accounts and Rule 5(a) of the Fourth Schedule cannot be invoked to disallow the above claim.
25. Since we have decided the above legal issue for which this Full Bench was constituted, we direct the roster to fix the main appeals before the Division Bench of the Tribunal so that the factual controversies and other issues, if any are decided accordingly.
C.M.A./141/Tax (Trib.)Order Accordingly.