COMMISSIONER OF INCOME TAX, KARACHI VS GRINDLAYS BANK PLC, KARACHI
2010 P T D 2012
[Karachi High Court]
Before Gulzar Ahmad and Irfan Saadat Khan, JJ
COMMISSIONER OF INCOME TAX, KARACHI
Versus
Messrs GRINDLAYS BANK PLC, KARACHI
I.T.As. Nos. 607 and 608 of 2000, decided on 23/02/2010.
Income Tax Ordinance (XXXI of 1979)---
----Ss.24(e), 24-C & 163---Income Tax Rules, 1982, R.20---Non resident Banking Company doing business in Pakistan---Head Office expenses, addition of---Scope---Provisions of Tax Treaty made for Avoidance of Double Taxation would prevail over provisions of Income Tax Ordinance, 1979 by virtue of S.163 thereof---No such addition could be made in income of such company.
American Express Bank Limited Karachi v. Commissioner of Income Tax, Karachi 2009 PTD 1791; I.T.C. No. 71, 75 and 76 of 1992, dated 8-10-1998 and I.T.A. No. 534 of 1999, dated 8-3-2005 rel.
Javed Farooqui for Appellants.
Iqbal Salman Pasha for Respondents.
ORDER
IRFAN SAADAT KHAN, J.---These Income Tax Appeals have been filed against the consolidated order passed by the learned Income Tax Appellate Tribunal (ITAT) in I.T.A. No.800/HQ of 1990-1991 pertaining to the assessment year 1989-90 and I.T.A. No. 1559/HQ of 1989-90, pertaining to the assessment year 1988-89 by raising the following questions of law.
(1) "Whether on the facts and in the circumstances of the case, the learned ITAT appreciated the provisions of law, section 24(e) and the Tax Treaty correctly to allow the total claimed expenses under the head without giving the department chance to examine the nature of expenses claimed and basis of allocation of expenses to limit the claims based on the facts and circumstances of the case?
(2) "Whether on the facts and in the circumstances of the case, the learned ITAT was justified to uphold the deletion of addition made under section 24(e) under the head "Head Office Expenses" by the learned CIT (Appeals)?
(3) "Whether on the facts and in the circumstances of the case, the words used in the relevant Article VII of the Tax Treaty as `reasonably allocable' executive and general administration expenses gives the department right to examine the nature of expenses and the basis of allocation to determine whether the basis and the expenses covered are reasonable?
2. Mr. Javed Farooqui, the learned counsel appearing in these appeals has submitted that the question No.1 raised in the present Income Tax Appeals (I.T.A.) has already been not pressed by him, which is apparent from the order passed by this court in the present appeals dated 17-10-2000. Hence, so far as question No.1 is concerned the present appeals are dismissed as not pressed. As regards question Nos.2 and 3 are concerned the learned counsel submitted that the learned ITAT neither appreciated the facts of the case nor examined the evidence in a proper manner. As per the learned counsel the respondent-company has not filed any break up of expenses and the basis of allocation of the "Head Office Expenses' claimed by them, hence, the Income Tax Panel (ITP) was justified in restricting the same on the basis of average of the last three years under the provisions of Rule 20 of the Income Tax Rules 1982. He, therefore, submitted that the order passed by the learned ITAT be set aside and the questions of law raised by him may be answered in negative i.e. in favour of the department and against the Assessee.
3. Mr. Iqbal Salman Pasha, learned counsel appearing on behalf of the Assessee/Respondent submitted that issue under discussion has already been laid at rest by a number of decisions given by this Court. He, in this regard, invited our attention to the decision reported as American Express Bank Limited Karachi v. Commissioner of Income Tax Karachi [2009 PTD 1791] and an unreported decision given in I.T.Cs. Nos.71, 75 and 76 of 1992 dated 8-10-1998. He, therefore, submitted that the present I.T.A. may be disposed of keeping in view the above referred decisions already given by the Division Bench of this Court. He also read out the operative part of those decisions.
4. We have heard both the learned counsel and have also perused the record and the case-laws cited before us.
5. Briefly stated the respondent is a non-resident banking company carrying on business through its branches in Pakistan. The returns of income were filed which were examined by I.T.P. The said I.T.P. then re-calculated the `Head Office Expenses' claimed by the respondent company as per the provision of section 24-C of the Income Tax Ordinance, 1979 [The repealed Ordinance] read with Rule 20 of the Income Tax Rules 1982. Appeals thereafter were filed by the respondent-Company before the Commissioner of Income Tax (Appeals) who vide his order dated 13-2-1990 and 27-11-1990 deleted the said additions made by the said ITP by observing that the provisions of Tax Treaty overrides the provisions of the Income Tax Law, hence the ITP was not justified in disallowing the said `Head Office Expenses' claimed by the respondent-Company. Appeals thereafter, were filed by the department before the learned ITAT which also, vide its order dated 21-12-1999, dismissed the same by observing that this matter has already been decided in a number of cases in favour of the Assessee, hence no interference is warranted. It is against this order of the ITAT that the present appeals have been filed by the department.
6. We have gone through the relevant provision of law and have also perused the judgments cited before us and are of the considered view that the issue in hand has already been decided in a number of decisions given by this Court. Relevant extract of the decision reported as 2009 PTD 1791 is reproduced below for case of reference.
"---R.20 Avoidance of Double Taxation Agreement between Pakistan and United States of America---Deduction of Head Office expenditure in the case of non-resident---Head Office expenses will be dealt with under the provisions of the Treaty between United States of America and Pakistan and not under the provisions of Income Tax Ordinance, 1979.
It was further held in the unreported decision given in ITC Nos.71, 75 and 76/1992 dated 8-10-1998 as under:
"From a plain reading of the various clauses, specially clause (c) of section 163 of the Income Tax Ordinance, it is clear that there can hardly be any dispute or doubt with regard to the non-applicability of the provisions of the Income Tax Ordinance while dealing with the issues enumerated in the aforesaid clauses due to the over-riding effect given to the provisions of the aforesaid agreement by section 163 (2) of the Income Tax Ordinance."
We also were able to lay our hands in respect of an unreported decision given by this court in I.T.A. No.534/1999 dated 8-3-2005 wherein a Bench of this court observed as under:---
"So far the first question, which is common in all the three appeals is concerned, the law already stands settled that the provisions contained in the Treaty for avoidance of double taxation prevail over the provisions of the Income Tax Ordinance, 1979, by virtue of the provision contained in section 163 of the Income Tax Ordinance, 1979."
7. When Mr. Javed Farooqui, the learned counsel appearing on behalf of the applicant was confronted with the position that the issue raised by him in the present I.T.A. has already been laid at rest by the above referred judgments, he candidly conceded to such position.
8. We, therefore, keeping in view the above position, dispose of the present I.T.A. in the same manner as already been decided in the above referred cases.
9. In view of the above both these I.T.A. are disposed of by answering question No.2 raised by the department in affirmative i.e. in favour of the respondent-Company and against the department. So far as question No.3 is concerned the same is not arising out of the order passed by the learned ITAT, hence the same is left unanswered.
S.A.K./C-5/KAnswered in affirmative.