COMMISSIONER OF INCOME TAX, COMPANIES ZONE-I, LAHORE VS CRESCENT INVESTMENT BANK, 2014 PTD-LAHORE-HIGH-COURT-LAHORE 2043 (2014)

Income Tax Ordinance (XXXI of 1979)---

----Ss.62 & 66-A---Banking Companies Ordinance (LVII of 1962), Ss.2(10) & 5(b)---Dividend income---Composite banking income---Income Tax Appellate Tribunal directed that dividend income of assessee should be taxed at reduced rate, whereas the same formed a part of composite banking income and separate rate of tax was prescribed for income from banking business---Validity---Assessee was involved in banking business as defined in Banking Companies Ordinance, 1962---Profits/dividends earned by assessee were nothing but earning from its business which was banking business and therefore, it should have been assessed as normal business and not as separate block of income from other sources---Income Tax Appellate Tribunal was not justified in directing that dividend income should be taxed at a reduced rate as dividend income formed part of composite banking income---Income Tax Appellate Tribunal had power under the provisions of S. 66-A of Income Tax Ordinance, 1979, to consider order passed under the law time and again subject to condition that the order under review was erroneous or prejudicial to the interest of revenue---Appeal was disposed of accordingly.

Sh.Abdul Sattar v. Commissioner of Income Tax Zone 'C' and 2 others 1995 PTD 882; Commissioner of Income Tax and Wealth Tax Sargodha Zone Sargodha v. Messrs Irshad Anwar & Co. 2002 PTD 750 and Commissioner of Income Tax Lahore v. National Fertilizer Corporation, Lahore 1996 PTD 276 ref.

Syed Sajjad Haider Rizvi for Appellant.

Naveed Amjad Andrabi Syed for Respondent.

Date of hearing: 17th March, 2014.

JUDGMENT

SHEZADA MAZHAR, J.---The present appeal has been filed against the order dated 22-4-2000 whereby the appeal filed by respondent company was allowed and the order passed by IAC under section 66-A of the Income Tax Ordinance was set aside.

2.Through the present appeal learned counsel for the appellant has sought this Court's opinion regarding the following questions:--

(a)Whether under the facts and circumstances of the case, the learned ITAT was justified in directing that dividend income should be taxed at a reduced rate, whereas the same forms a part of the composite banking income and separate rate of tax is prescribed for income from banking business under the Ordinance?

(b)Whether under the facts and circumstances of the case the learned ITAT was justified in holding that ICA cannot invoke the provision of section 66-A of the Ordinance time and again, whereas, as per said section, if the IAC considers that any order passed by the Deputy Commissioner is erroneous in so far it is prejudicial to the interest of revenue, he may after giving assessee an opportunity of being heard, pass such order as the circumstances of the case?

3.Facts necessary for the disposal of this appeal are that the original assessment order for the assessment year 1994/95 was finalized by DCIT Circular II under section 62 of the Income Tax Ordinance, 1979 (ITO, 1979) at the net income of Rs.84,317,097. The assesse company was assigned the status of public limited company and dividend income was taxed @ 5% as separate block of income and it was observed that the assesse had wrongly been assigned the status of public limited company as assesse was engaged in the business of banking without permission of the competent authority, and therefore, the status of the banking company should have been assigned for the purposes of collection of tax. It was also observed that assessment was erroneous and prejudicial to the interest of revenue, therefore proceedings under section 66-A of the Income Tax Ordinance, 1979 was ordered. An order under section 66-A Income Tax Ordinance, 1979 was passed whereby the status of the banking company was assigned to the respondent company. On appeal, the ITAT accepted the appeal of the assesse and restored the status as assigned by the DCIT.

4.On the basis of order of the ITAT, the IAC re-examined the case, and it was observed by IAC that the assessing officer had taxed the dividend income as separate block of income which according to law should have been assessed at par with other business income of the assesse as earning on deposits was assesses, business. IAC once again passed orders under section 66-A of the Income Tax Ordinance, 1979 and directed that dividend income earned by the assesse company be taxed at normal rates instead of reduced rates. The assesse again preferred appeal to the ITAT and the same was once again allowed on the ground that the same court had already directed not to treat the assesse as a banking company. It was also observed by the ITAT that IAC cannot pass order under section 66-A time and again. Against the said order, the present appeal has been filed on the above mentioned question of law.

5.The learned counsel for the appellant submits that definition of the banking company as given in section 5 (b) of the Banking Companies Ordinance, 1962 (BCO, 1962) has not been considered by 1TAT while deciding the appeal of the assesse. Further submits that as per the said definition the respondent company falls within the definition of a banking company and therefore, the income earned by the respondent company should have been assessed as a banking company. Further submits that assesse is a body corporate and is fully covered under the banking company vide section 2(10) of the Income Tax Ordinance, 1979 read with section 5(b) of the BCO, 1962. Learned counsel further submits that definition as contained under section 5(b) of the BCO, 1962 can be better understood if it is divided in parts in which it has been framed. The first part of the definition states "accepting for the purposes of lending or investment of deposits of money" gives the substance and real nature of this business. It is accepting money from public and then lending it or investing it in the ventures considered suitable. An account holder or depositor with a bank are its creditors which means the trust of the depositor that he will have his money back as and when needed or in accordance with the terms settled. Submits that in view of the definition as explained above, the respondent company is a banking company, and therefore, it should have been assessed accordingly. Regarding powers under section 66-A, I.T.O., 1979 learned counsel submits that the matter has already been settled by this Court in the case reported as 1995 PTD 882 Sh.Abdul Sattar v. Commissioner of Income Tax Zone 'C' and 2 others as well as 2002 PTD 750 Commissioner of Income Tax and Wealth Tax Sargodha Zone Sargodha v. Messrs Irshad Anwar & Co.

6.Conversely, learned counsel appearing for respondent company submits that the company is not a banking company, rather an investment company, and therefore, it was rightly held by the ITAT in its earlier order that status of public company be given to the respondent company, and dividend income should have been assessed as a separate block due to the fact that the same is not the company's income from its business. Learned counsel also relies upon 1996 PTD 276 Commissioner of Income Tax Lahore v. National Fertilizer Corporation, Lahore to state that dividend income was a separate income, and should be charged on the basis of income from other sources.

7.Arguments heard. Record perused.

8.Regarding question 'a' the case relied upon by the learned counsel for the respondent that is 1996 PTD 276 Commissioner of Income Tax Lahore v. National Fertilizer Corporation, Lahore relates to a fertilizer company which was a public limited company and was involved in the business of fertilizer manufacturing and the income derived by such company from the dividend was termed as separate income. Said case is not applicable to the facts of the present case.

9.The present company is admittedly an investment bank involved in the business of investment. It is not denied by the learned counsel that according to the memorandum and articles of the respondent company it is a public limited company and that the said company is accepting money from public at large and making investment of the same. The dividend earned from the said investment is utilized by the company for further investment. According to the definition under section 5(c) of the BCO, 1962 a banking company means any company which transacts the business of banking in Pakistan and includes their branches and subsidiaries functioning outside Pakistan of bank companies incorporated in Pakistan. Banking is also defined in section 5(b) which states means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, or otherwise. When the above two definitions of banking and banking company are read with the definition of banking company as given under section 2(10) of the ITO, 1979, which states Banking Company has the same meaning as in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes any body corporate formed by or under any law for the time being in force which transacts the business of banking in Pakistan, the respondent company is nothing but a banking company.

10.The above definition when read with the respondent company/investment banks powers to receive and deposit the money, it is clear that the same is involved in banking business as defined under the BCO, 1962. Therefore, the profits/dividends earned by the respondent company are nothing but earning from its business which is the banking business and therefore it should have been assessed as normal business and not as separate block of income from other sources.

11.In view the above, the, question 'a' is answered in the negative and it is answered that ITAT was not justified in directing that dividend income should be taxed at a reduced rate as the dividend income forms a par of the composite banking income.

12.Regarding question 'b', the matter has already been settled by this Court in the case reported as 1995 PTD 882 Sh.Abdul Sattar v. Commissioner of Income Tax Zone 'C' and 2 others as well as 2002 PTD 750 Commissioner of Income Tax and Wealth Tax Sargodha Zone Sargodha v. Messrs Irshad Anwar and Co. supra, wherein after analyzing the provision of section 66-A(1) supra it was held that the provision of section 66-A being mandatory in its nature shall apply even if the appeal has been filed or reference has been made. Further in 2002 PTD 750 it was held that powers under section 66-A can even be applied on agreed assessment.

13.In view the above settled provision of law, the question 'b', is answered in the affirmative and it is answered that ITAT had the power under the provisions of section 66-A to consider the order passed under the law time and again subject to the condition that the order under review is erroneous or prejudicial to the interest of the revenue.

MH/C-9/LOrder accordingl